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business
principles financial accounting

Financial Accounting A Business Perspective 7th Edition Roger H. Hermanson, James Don Edwards - Solutions

The largest spice company in the world, McCormick \& Company, Inc., produces a diverse array of specialty foods. The following information is for McCormick \& Company, Inc.:Assume average common shares outstanding for 1996 and 1995 are 78,205 and 81,218 (in millions), respectively.Required
Parametric Technology Corporation is in the CAD/CAM/CAE industry and is the top supplier of software tools used to automate a manufacturing company. The following consolidated balance sheet and supplementary data are for Parametric for 1996:1. Net income \(\$ 137,910\).Supplementary data 2. Income
Paper Company is considering switching from the FIFO method to the LIFO method of accounting for its inventory before it closes its books for the year. The January 1 merchandise inventory was \(\$ 864,000\). Following are data compiled from the adjusted trial balance at the end of the year:If the
Fruit of the Loom is one of the largest manufacturers of knit apparel in the world and has maintained a position of leadership as a vertically integrated low-cost producer in the industry. Fruit of the Loom's comparative statements of income and retained earnings for 1995 and 1994 are given
Deere \& Company manufactures, distributes, and finances a full range of agricultural equipment; a broad range of industrial equipment for construction, forestry, and public works; and a variety of lawn and grounds care equipment. The company also provides credit, health care, and insurance
The following data are for Toy Company:Requireda. Compute the amount of working capital at both year-end dates.b. Compute the current ratio at both year-end dates.c. Compute the acid-test ratio at both year-end dates.d. Compute the cash flow liquidity ratio at both year-end dates.e. Comment briefly
On December 31, 2000, Energy Company's current ratio was 3:1 before the following transactions were completed:1. Purchased merchandise on account.2. Paid a cash dividend declared on November 15,2000 .3. Sold equipment for cash.4. Temporarily invested cash in trading securities.5. Sold obsolete
Digital Company has net operating income of \(\$ 500,000\) and operating assets of \(\$ 2,000,000\). Its net sales are \(\$ 4,000,000\).The accountant for the company computes the rate of return on operating assets after computing the operating margin and the turnover of operating assets.a. Show
Polaroid Corporation designs, manufactures, and markets worldwide instant photographic cameras and films, electronic imaging recording devices, conventional films, and light polarizing filters and lenses. The following information is for Polaroid:Compute the following for both 1995 and 1994. Then
The Walt Disney Company operates several ranges of products from theme parks and resorts to broadcasting and other creative content. The following balance sheet and supplementary data are for The Walt Disney Company for 1996.1. Net income \(\$ 1,214\).2. Income before interest and taxes, \(\$
Cooper Company currently uses the FIFO method to account for its inventory but is conof change in accounting sidering a switch to LIFO before the books are closed for the year. Selected data for the year are:a. Compute the current ratio, inventory turnover ratio, and rate of return on operating
National Sports, Inc., is a sports equipment sales company. During 1998, the company replaced \(\$ 18,000\) of its fully depreciated equipment with new equipment costing \(\$ 23,000\). Although a midyear dividend of \(\$ 5,000\) was paid, the company found it necessary to borrow \(\$ 5,000\) from
Following are comparative balance sheets for Hardiplank Siding, Inc.:An analysis of the Retained Earnings account for the year reveals the following:a. Equipment with a cost of \(\$ 30,000\) on which \(\$ 27,000\) of depreciation had been Required answer questions (L.O.5) accumulated was sold
Refer to the annual report booklet. Evaluate the ease with which each of the four companies represented will be able to maintain their dividend payments in the future at 1996 amounts. (Hint: Compare current dividend amounts with net cash provided by operating activities.) Rank the companies in
Refer to "A Broader Perspective" on page 598 and answer the following questions:a. Over the last three years from which major activities (operations, investing, financing) has Johnson \& Johnson received net cash inflows and on which major activities have they spent the funds?b. What relationship
Refer to the annual report booklet. For each of the four companies-The Coca-Cola Company; Maytag Corporation; The Limited, Inc.; and John H. Harland-calculate the following ratios for 1996:a. Cash flow per share of common stock ratio. (Look at the Consolidated Statements of Shareholders' Equity or
In groups of two or three students write a two-page, double-spaced paper on one of the following topics:Which Is Better, the Direct or Indirect Method (of calculating net cash provided by operating activities)?Analysis of the Johnson \& Johnson Cash Flow Statement (shown in "A Broader\title{Annual
In a group of one or two other students, go to the library and locate Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows," published by the Financial Accounting Standards Board. Write a report to your instructor answering the following questions:1. Why did the Board settle
In a group of one or two other students, go to the library and locate Statement of Financial Accounting Standards No. 95, "Statement of Cash Flows," published by the Financial Accounting Standards Board. Write a report to your instructor covering the following points:1. Describe the controversy
\author{Visit the following website for Digital Equipment Corporation: \\ http://www.dec.com}By following the instructions on the screen, locate the latest statement of cash flows and then print it. Analyze the statement and write a report to your instructor summarizing your analysis.
Visit the following website for GTE Corporation: http://www.GTE.com By following the information on the screen, locate the latest statement of cash flows and then print it. Analyze the statement and then write a report to your instructor summarizing your analysis.
An objective of financial statement analysis is to provide information about the company's past performance and current financial position.
Vertical analysis helps detect changes in a company's performance over several periods and highlights trends.
Common-size statements provide information about changes in dollar amounts relative to the previous periods.
Liquidity ratios show a company's capacity to pay maturing current liabilities.
A company that is quite profitable may find it difficult to pay its accounts payable.
Financial statement analysts must be sure that comparable data are used among companies to make the comparisons valid.
The current ratio is:a. \(1: 2\).b. 2:1.c. \(1.2: 1\).d. \(3: 1\).
The acid-test ratio is:a. \(1: 2\).b. 2:1.c. \(1.2: 1\)d. 3:1.Benson Company shows the following data on its 2000 financial statements (use for questions 3-5): Accounts receivable, January 1 Accounts receivable, December 31, $ 720,000 960,000
The accounts receivable turnover is:a. 5.5 times per year.b. 5.714 times per year.c. 5 times per year.d. 6.667 times per year.
The inventory turnover is:a. 5 times per year.b. 4.8125 times per year.c. 3.5 times per year.d. 4 times per year.
The times interest earned ratio is:a. 4.75 times per year.b. 3.75 times per year.c. 2 times per year.d. 3 times per year.
What are the major sources of financial information for publicly owned corporations?
The higher the accounts receivable turnover rate, the better off the company is. Do you agree? Why?
Can you think of a situation where the current ratio is very misleading as an indicator of short-term, debt- paying ability? Does the acid-test ratio offer a remedy to the situation you have described? Describe a situa- tion where the acid-test ratio does not suffice either.
Before the Marvin Company issued $20,000 of long- term notes (due more than a year from the date of issue) in exchange for a like amount of accounts pay- able, its current ratio was 2:1 and its acid-test ratio was 1:1. Will this transaction increase, decrease, or have no effect on the current ratio
Through the use of turnover rates, explain why a firm might seek to increase the volume of its sales even though such an increase can be secured only at reduced prices.
Indicate which of the relationships illustrated in the chapter would be best to judge:a. The short-term debt-paying ability of the firm.b. The overall efficiency of the firm without regard to the sources of assets.c. The return to owners (stockholders) of a corporation.d. The safety of long-term
Indicate how each of the following ratios or measures is calculated:a. Payout ratio.b. Earnings per share of common stock.c. Price-earnings ratio.d. Earnings yield on common stock.e. Dividend yield on preferred stock.f. Times interest earned.g. Times preferred dividends earned.h. Return on average
How is the rate of return on operating assets determined? Is it possible for two companies with operating margins of \(5 \%\) and \(1 \%\), respectively, to both have a rate of return of \(20 \%\) on operating assets? How?
Cite some of the possible deficiencies in accounting information, especially regarding its use in analyzing a particular company over a 10 -year period.
Real World Question From the Consolidated Statements of Income of The Coca-Cola Company in the annual report booklet, determine the percentage change in operating income from 1995 to 1996.
Real World Question From the Consolidated Statements of Income of The Coca-Cola Company in the annual report booklet, determine the 1996 net income per common share.
Real World Question From the "Selected Financial Data" of The Coca-Cola Company in the annual report booklet, determine the 1996 cash dividends per common share.
Real World Question From the financial statements of The Coca-Cola Company in the annual report booklet, determine the 1996 cash flow margin.
Plant equipment originally costing \(\$ 32,400\), on which \(\$ 21,600\) of up-to-date depreciation has been accumulated, was sold for \(\$ 8,100\).a. Prepare the journal entry to record the sale.b. Prepare the entry to record the sale of the equipment if \(\$ 90\) of removal costs were incurred to
On August 31, 1998, Hutch Company sold a truck for \(\$ 6,900\) cash. The truck was acquired on January 1,1995 , at a cost of \(\$ 17,400\). Depreciation of \(\$ 10,800\) on the truck has been recorded through December 31, 1997, using the straight-line method, four-year expected useful life, and an
A machine costing \(\$ 120,000\), on which \(\$ 90,000\) of up-to-date depreciation has been accumulated, was completely destroyed by fire. What journal entry should record the machine's destruction and the resulting fire loss under each of the following unrelated assumptions?a. The machine was not
Kale Company owned an automobile acquired on January 1,1996 , at a cash cost of \(\$ 35,100\); at that time, the automobile was estimated to have a useful life of four years and a \(\$ 2,700\) salvage value. Depreciation has been recorded through December 31, 1998, on a straight-line basis. On
Equipment costing \(\$ 330,000\), on which \(\$ 225,000\) of up-to-date accumulated depreciation has been recorded, was disposed of on January 2, 1998. What journal entries are required to record the equipment's disposal under each of the following unrelated assumptions?a. The equipment was sold
Nola Mining Company purchased a tract of land containing ore for \(\$ 630,000\). After spending \(\$ 90,000\) in exploration costs, the company determined that 600,000 tons of ore existed on the tract but only 500,000 tons could be economically removed. No other costs were incurred. When the
Boyd Company paid \(\$ 7,200,000\) for the right to extract all of the mineral-bearing ore, estimated at 10 million tons, that can be economically extracted from a certain tract of land. During the first year, Boyd Company extracted \(1,000,000\) tons of the ore and sold 800,000 tons. What part of
The Slate Mining Company acquired a tract of land for mining purposes and erected a building on-site at a cost of \(\$ 675,000\) and having no salvage value. Though the building has a useful life of 10 years, the mining operations are expected to last only 6 years. The company has determined that
Don Jackson paid Hungry Hannah's Hamburgers \(\$ 54,000\) for the right to operate a fast-food restaurant in Thomasville under the Hungry Hannah's name. Jackson also agreed to pay an operating fee of \(0.5 \%\) of sales for advertising and other services rendered by Hungry Hannah's. Jackson began
Lem Company leased the first three floors in a building under an operating lease contract for a 10 -year period beginning January 1,1998 . The company paid \(\$ 240,000\) in cash (not representing a specific period's rent) and agreed to make annual payments equal to \(1 \%\) of the first \(\$
Rye Company purchased all of the assets of Shef Company for \(\$ 900,000\). Rye Company also agreed to assume responsibility for Shef Company's liabilities of \(\$ 90,000\). The fair market value of the assets acquired was \(\$ 810,000\). How much goodwill should be recorded in this transaction?
Ray, Inc., purchased a new 1999 model automobile on December 31, 1999. The cash price of the new automobile was \(\$ 28,080\), from which Ray received a trade-in allowance of \(\$ 4,320\) for a 1997 model traded in. The 1997 model had been acquired on January 1, 1997, at a cost of \(\$ 20,700\).
On January 1, 1996, Wood Company purchased a truck for \(\$ 43,200\) cash. The truck has an estimated useful life of six years and an expected salvage value of \(\$ 5,400\). Depreciation on the truck was computed using the straight-line method.a. Prepare a schedule showing the computation of the
Kine Company purchased a new Model II computer October 1, 1998. Cash price of the new computer was \(\$ 24,960\); Jackson received a trade-in allowance of \(\$ 9,300\) from the cash price for a Model I computer. The old computer was acquired on January 1, 1996, at a cost of \(\$ 23,040\).
On July 1, 1998, Morgan Company had the following balances in some of its accounts:Prepare journal entries to record these transactions and the necessary June 30, 1999, adjusting entries. Use the straight-line depreciation method. Asset Accumulated Depreciation Land Leasehold Buildings Equipment.
In December 1997, Brown Company acquired a mine for \(\$ 2,700,000\). The mine contained an estimated 10 million tons of ore. It was also estimated that the land would have a value of \(\$ 240,000\) when the mine was exhausted and that only 4 million tons of ore could be economically extracted. A
Trask Company purchased a patent for \(\$ 108,000\) on January 2, 1998. The patent was estimated to have a useful life of 10 years. The \(\$ 108,000\) cost was properly charged to an asset account and amortized in 1998. On January 1, 1999, the company incurred legal and court costs of \(\$ 32,400\)
Selected transactions and other data for Grant Company:a. The company purchased a patent in early January 1995 for \(\$ 144,000\) and began amortizing it over 10 years. In early January 1997, the company hired an outside law firm and successfully defended the patent in an infringement suit at a
Orr Company traded in an automobile that cost \(\$ 18,000\) and on which \(\$ 15,000\) of up-to-date depreciation has been recorded for a new automobile with a cash price of \(\$ 34,500\). The company received a trade-in allowance (its fair value) for the old automobile of \(\$ 2,100\) and paid the
On January 2, 1996, Blake Company purchased a delivery truck for \(\$ 78,750\) cash. The truck has an estimated useful life of six years and an estimated salvage value of \(\$ 6,750\). The straightline method of depreciation is being used.a. Prepare a schedule showing the computation of the book
Eagle Moving Company purchased a new moving van on October 1, 1998. The cash price of the new van was \(\$ 33,750\), and the company received a trade-in allowance of \(\$ 5,600\) for a 1996 model. The balance was paid in cash. The 1996 model had been acquired on January 1, 1996, at a cost of \(\$
On January 1, 1998, Moyer Company had the following balances in some of its accounts:Prepare journal entries to record the 1998 transactions and the necessary December 31, 1998, adjusting entries, assuming a calendar-year accounting period. Use the straight-line depreciation method. Land Leasehold
On January 2, 1998, York Mining Company acquired land with ore deposits at a cash cost of \(\$ 1,800,000\). Exploration and development costs amounted to \(\$ 192,000\). The residual value of the land is expected to be \(\$ 360,000\). The ore deposits contain an estimated 6 million tons. Present
East Company spent \(\$ 249,900\) to purchase a patent on January 2, 1998. Management assumes that the patent will be useful during its full legal life. In January 1999, the company hired an outside law firm and successfully defended the patent in a lawsuit at a cost of \(\$ 48,000\). Also, in
Following are selected transactions and other data relating to Long Company for the year ended December 31, 1998.a. The company rented the second floor of a building for five years on January 2, 1998, and paid the annual rent of \(\$ 18,000\) for the first and fifth years in advance.b. In 1997, the
During your audit examination of the Shirley Company's Plant, Property, and Equipment accounts, the following transaction came to your attention. On January 2, 1998, machine A was exchanged for machine B. Shirley Company acquired machine A for \(\$ 90,000\) on January 2, 1996. Machine A had an
Currently, many corporations are looking for acquisition opportunities. Tyre, Inc., is trying to decide whether to buy Amite Company or Beauman Company. Tyre, Inc., has hired you as a consultant to analyze the two companies' financial information and to determine the more advantageous acquisition.
The mission of Rational Sof tware Corporation is to ensure the success of customers constructing the software systems that they depend on.Using the following excerpt from Rational Software's 1996 annual report, calculate the firm's total assets turnover for 1995 and 1996. (Amounts are in \(\$\)
Based on the situation described in the ethics case on page 417 regarding \(\mathrm{ABC}\) Corporation, respond in writing to the following questions.a. Depending on his actions, what are the possible consequences for John Gilbert in this situation?b. Assuming that the president cannot find another
In teams of two or three students, find a recent annual report that includes intangible assets on the balance sheet. Select one member of each team to give an informal presentation discussing intangible asset disclosures on the face of the statements and in the notes to the financial statements.
In a group of one or two other students, go to the library and locate Statement of Financial Accounting Standards No. 2, "Accounting for Research and Development Costs," published by the Financial Accounting Standards Board. Write a report to your instructor giving the highlights of the standard.
In a group of one or two other students, go to the library and locate Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," published by the Financial Accounting Standards Board. Write a report to your
\section*{Visit the Accounting News Network at Microsoft's website: http://www.microsoft.com/smallbiz/ann/}Click on each icon to investigate the information available at this site. Browse any of the areas that look interesting. How would accounting practitioners make good use of this site? In a
Visit the Small Business Administration site at:\section*{http://www.sba.gov}Suppose you wanted to start a small business. What helpful information would you find at this site? Would this site provide information on how to finance the business? Browse around this site to see what it offers. Then
A person may favor the corporate form of organization for a risky business enterprise primarily because a corporation's shares can be easily transferred
In the event of corporate liquidation, stockholders whose stock is preferred as to assets are entitled to receive the par value of their shares before any amounts are distributed to creditors or common stockholders.
The par value of a share of capital stock is no indication of the market value or book value of the share of stock.
When 10,000 shares of \(\$ 20\) par value common stock are issued in payment for a parcel of land with a fair market value of \(\$ 300,000\), the Common Stock account is credited for \(\$ 200,000\), and the Paid-In Capital in Excess of Par Value-Common account is credited for \(\$ 100,000\).
Which of the following is not an advantage of the corporate form of organization?a. Continuous existence of the entity.b. Limited liability of stockholders.c. Government regulation.d. Easy transfer of ownership.
An arbitrary amount assigned by the board of directors to each share of a given class of no-par stock is:a. Quasi-par value.b. Stated value.c. Redemption value.d. Liquidation value.
Preferred stock that has dividends in arrears is:a. Noncumulative preferred stock.b. Noncumulative and callable preferred stock.c. Noncumulative and convertible preferred stock.d. Cumulative preferred stock.
Quinn Corporation issued 10,000 shares of \(\$ 20\) par value common stock at \(\$ 50\) per share. The amount that would be credited to Paid-In Capital in Excess of Par Value-Common is:a. \(\$ 200,000\).d. \(\$ 700,000\).b. \(\$ 300,000\).e. None of the above.c. \(\$ 500,000\).
You are given the following information: Capital Stock, \(\$ 80,000\) ( \(\$ 80\) par); Paid-In Capital in Excess of Par Value-Common, \(\$ 200,000\); and Retained Earnings, \(\$ 400,000\). Assuming only one class of stock, the book value per share is:a. \(\$ 680\).d. \(\$ 400\).b. \(\$ 280\).e.
Cite the major advantages of the corporate form of business organization and indicate why each is considered an advantage.
What is meant by the statement that corporate income is subject to double taxation? Cite several other disadvantages of the corporate form of organization.
Why is Organization Expense not a good title for the account that records the costs of organizing a corporation? Could you justify leaving the balance of an Organization Costs account intact throughout the life of a corporation?
What are the basic rights associated with a share of capital stock if there is only one class of stock outstanding?
Explain the purpose or function of: (a) the stockholders' ledger, \((b)\) the minutes book, \((c)\) the stocktransfer agent, and \((d)\) the stock registrar.
What are the differences between par value stock and stock with no-par value?
Corporate capital stock is seldom issued for less than par value. Give two reasons why this statement is true.
Explain the terms liquidation value and redemption value.
What are the meanings of the terms stock preferred as to dividends and stock preferred as to assets?
What do the terms cumulative and noncumulative mean in regard to preferred stock?
A corporation has 1,000 shares of \(8 \%, \$ 200\) par value, cumulative, preferred stock outstanding. Dividends on this stock have not been declared for three years. Is the corporation legally liable to its preferred stockholders for these dividends? How should this fact be shown in the balance
Explain why a corporation might issue a preferred stock that is both convertible into common stock and callable.

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