Question: An investment will pay $15,000 at

> For accounting purposes, what is an account? Explain why accounts are used in an accounting system.

> Starbucks Corporation purchases and roasts high-quality whole bean coffees and sells them along with fresh-brewed coffees, Italian-style espresso beverages, a variety of pastries and confections, coffee-related accessories and equipment, and a line of pr

> Complete the following schedule: Table Values Concept i = 5%,n = 4; i = 10%, n = 7; i = 14%,n = 10 PV of $1 PV of annuity of $1

> Vigeland Company completed the following transactions during 2011. The annual accounting period ends December 31, 2011. Jan. 15 Purchased and paid for merchandise for resale at an invoice cost of $14,200; periodic inventory system. A

> On January 1, 2011, Spearfish Company completed the following transactions (use an 8 percent annual interest rate for all transactions): a. Deposited $50,000 in a debt retirement fund. Interest will be computed at six-month intervals and added to the fu

> On December 31, 2011, Mercury Company created a fund that will be used to pay the principal amount of a $120,000 debt due on December 31, 2014. The company will make four equal annual deposits on each December 31 in 2011, 2012, 2013, and 2014. The fund w

> After hearing a knock at your front door, you are surprised to see the Prize Patrol from a large, wellknown magazine subscription company. It has arrived with the good news that you are the big winner, having won $12.5 million. You discover that you have

> On January 1, 2011, Boston Company completed the following transactions (use a 7 percent annual interest rate for all transactions): a. Borrowed $115,000 for seven years. Will pay $8,050 interest at the end of each year and repay the $115,000 at the end

> Mansfield Corporation purchased a new warehouse at the beginning of 2011 for $1,000,000. The expected life of the asset is 20 years with no residual value. The company uses straight-line depreciation for financial reporting purposes and accelerated depre

> PepsiCo, Inc., is a $25 billion company in the beverage, snack food, and restaurant businesses. PepsiCo’s annual report included the following note: At year-end, $3.5 billion of short-term borrowings were reclassified as long-term, reflecting PepsiCo’s

> For each of the following transactions, determine whether cash flows from operating activities will increase, decrease, or remain the same: a. Purchased merchandise on credit. b. Paid an account payable in cash. c. Accrued payroll for the month but di

> For each of the following situations, determine whether the company should (a) report a liability on the balance sheet, (b) disclose a contingent liability, or (c) not report the situation. Justify and explain your conclusions. 1. An automobile compan

> Complete the following matrix by entering either increase or decrease in each cell: Item Debit Credit Revenues Losses Gains Expenses

> Why are accounting assumptions necessary?

> Dell Computers is a leader in the industry with over $56 billion in sales each year. A recent annual report for Dell contained the following note: Warranty We record warranty liabilities at the time of sale for the estimated costs that may be incurred un

> Using the data from the previous exercise, complete the following requirements. Required: 1. Determine the financial statement effects for each of the following: (a) the adjusting entry for accrued wages required on December 31, 2012, (b) the January

> During 2012, Walnut Company completed the following two transactions. The annual accounting period ends December 31. a. Paid and recorded wages of $130,000 during 2012; however, at the end of December 2012, three days’ wages are unpaid and unrecorded be

> Using data from the previous problem, complete the following requirements. Required: 1. For each transaction (including adjusting entries) listed in the previous problem, indicate the effects (e.g., cash + or −), using the following schedule: Date

> Rogers Company completed the following transactions during 2011. The annual accounting period ends December 31, 2011. (AP9-1) Jan. 8 Purchased merchandise for resale on account at an invoice cost of $14,860; assume a periodic inventor

> Fred wants to save enough money each year so that he can purchase a sports car in January 2013. Fred receives a large bonus from his employer every December 31. He anticipates that the car will cost $54,000 on January 1, 2013. Which of the following will

> Jacobs Company borrowed 100,000 at 8 percent interest for three months. How much interest does the company owe at the end of three months? a. $8,000 b. $2,000 c. $800 d. $200

> The present value of an annuity of $10,000 per year for 10 years discounted at 8 percent is what amount? a. $5,002 b. $67,101 c. $53,349 d. $80,000

> How is working capital calculated? a. Current assets multiplied by current liabilities. b. Current assets plus current liabilities. c. Current assets minus current liabilities. d. Current assets divided by current liabilities.

> Strauderman Delivery Company, Inc., was organized in 2011 in Wisconsin. The following transactions occurred during year 2011: a. Received $40,000 cash from organizers in exchange for stock in the new company. b. Purchased land in Wisconsin for $16,000,

> Which of the following transactions would usually cause accounts payable turnover to increase? a. Payment of cash to a supplier for merchandise previously purchased on credit. b. Collection of cash from a customer. c. Purchase of merchandise on credit

> Refer to P2-5. Dell Inc., headquartered in Austin, Texas, is the global leader in selling computer products and services. The following is Dell’s (simplified) balance sheet from a recent year. Assume that the following transactions (

> A company is facing a class-action lawsuit in the upcoming year. It is possible, but not probable, that the company will have to pay a settlement of approximately $2,000,000. How would this fact be reported in the financial statements to be issued at the

> Company X has borrowed $100,000 from the bank to be repaid over the next five years, with payments beginning next month. Which of the following best describes the presentation of this debt in the balance sheet as of today (the date of borrowing)? a. $10

> Which of the following best describes accrued liabilities? a. Long-term liabilities. b. Current amounts owed to suppliers of inventory. c. Current liabilities to be recognized as revenue in a future period. d. Current amounts owed to various parties

> The university spirit organization needs to buy a car to travel to football games. A dealership in Lockhart has agreed to the following terms: $4,000 down plus 20 monthly payments of $750. A dealership in Leander will agree to a $1,000 down payment plus

> What is the present value factor for an annuity of five periods and an interest rate of 10 percent? a. 1.6105 b. 6.1051 c. 3.7908 d. 7.7217

> What is the present value of 10 equal payments of $15,000 with an interest rate of 10 percent?

> The balance sheet for Stevenson Corporation reported the following: quick assets, $20,000; noncurrent assets, $240,000; total assets, $360,000; noncurrent liabilities, $176,000; total stockholders’ equity, $94,000. Compute Stevenson’s quick ratio and wor

> For each of the following items, specify whether the information would be found in the balance sheet, the income statement, the statement of cash flows, the notes to the statements, or not at all. 1. The amount of working capital. 2. The total amount of

> Complete the following matrix by entering either debit or credit in each cell: Item Increase Decrease Revenues Losses Gains Expenses

> Kieso Company borrowed $600,000 on a 90-day note at 11 percent interest. The money was borrowed for 30 days in 2011 and 60 days in 2012; the note and interest were to be paid upon maturity in 2012. How much interest expense, if any, would be reported in

> You plan to retire in 10 years. Would it be better for you to save $27,500 a year for the last five years before retirement or $16,250 for each of the 10 years? You are able to earn 9 percent interest on your investments.

> Dell Inc., headquartered in Austin, Texas, is the global leader in selling computer products and services. The following is Dell’s (simplified) balance sheet from a recent year. Assume that the following transactions (in millions of d

> Refer to the financial statements of Urban Outfitters in Appendix C at the end of this book. Required: 1. Use the company’s balance sheet to determine the amounts in the accounting equation (A = L + SE) as of January 31, 2009. 2. If the company were

> As a result of a slowdown in operations, Global Stores is offering employees who have been terminated a severance package of $118,000 cash, another $129,000 to be paid in one year, and an annuity of $27,500 to be paid each year for six years beginning in

> What is the present value of $500,000 to be paid in 10 years with an interest rate of 8 percent?

> Buzz Coffee Shops is famous for its large servings of hot coffee. After a famous case involving McDonald’s, the lawyer for Buzz warned management (during 2011) that it could be sued if someone were to spill hot coffee and be burned: “With the temperature

> Ospry, Inc., has a quick ratio of 0.50 and working capital in the amount of $1,240,000. For each of the following transactions, determine whether the quick ratio and working capital will increase, decrease, or remain the same. a. Paid accounts payable i

> Wygant Corporation borrowed $290,000 on October 1, 2011. The note carried a 10 percent interest rate with the principal and interest payable on May 1, 2012. Prepare the journal entry to record the note on October 1. Prepare the adjusting entry to record

> You want a retirement fund of $125,000 when you retire in six years. You are able to earn 8 percent on your investments. How much should you deposit each year to build the retirement fund that you want?

> What four criteria must normally be met for revenue to be recognized under accrual basis accounting?

> On January 1, 2011, you deposited $6,000 in a savings account. The account will earn 10 percent annual compound interest, which will be added to the fund balance at the end of each year. Required (round to the nearest dollar): 1. What will be the balan

> You have the chance to purchase the royalty interest in a gas well in the Barnett Shale. Your best estimate is that the net royalty income will average $25,000 per year for seven years. There will be no residual value at that time. Considering the uncert

> Smith Company has purchased a new office building. The company has agreed to pay the developer $55,000 annually for 9 years. Using present value techniques, determine the value that should be recorded for the building when it is purchased. Assume a 6 per

> Refer to P2-3. Cougar Plastics Company has been operating for three years. At December 31, 2011, the accounting records reflected the following: During the year 2012, the company had the following summarized activities: a. Purchased short-term investm

> An investment will pay $11,000 at the end of the first year, $30,000 at the end of the second year, and $50,000 at the end of the third year. Determine the present value of this investment using a 10 percent interest rate.

> Judge Drago has decided to set up an educational fund for his favorite granddaughter, Emma, who will start college in one year. The judge plans to deposit an amount in a savings account that pays 9 percent interest. He wants to deposit an amount that is

> You are a financial adviser working with a client who wants to retire in eight years. The client has a savings account with a local bank that pays 9 percent and she wants to deposit an amount that will provide her with $900,000 when she retires. Currentl

> You have just won the state lottery and have two choices for collecting your winnings. You can collect $50,000 today or receive $10,100 per year for the next seven years. A financial analyst has told you that you can earn 10 percent on your investments.

> Super Savers Department Store reported a quick ratio of 0.6. A review of its balance sheet revealed the following information: Quick assets......................................................$120,000 Current assets.....................................

> Explain the difference between a. Revenues and gains. b. Expenses and losses.

> On each December 31, you plan to deposit $2,000 in a savings account. The account will earn 9 percent annual interest, which will be added to the fund balance at year-end. The first deposit will be made December 31, 2011 (end of period). Required (show

> On January 1, 2011, Alan King decided to deposit $58,800 in a savings account that will provide funds four years later to send his son to college. The savings account will earn 8 percent, which will be added to the fund each year-end. Required (show com

> On January 1, 2011, Shannon Company completed the following transactions (assume a 10 percent annual interest rate): a. Bought a delivery truck and agreed to pay $50,000 at the end of three years. b. Rented an office building and was given the option o

> The annual report for Starbucks contains the following information (in millions): Income Taxes The provision for income taxes consisted of the following (in millions): Required: 1. Determine whether tax expense is higher or lower than taxes payable f

> The balance sheet for Nair Corporation provided the following summarized pretax data: The income statement reported tax expense for 2012 in the amount of $580,000. Required: 1. What was the amount of income taxes payable for 2012? 2. Why would manag

> Cougar Plastics Company has been operating for three years. At December 31, 2011, the accounting records reflected the following: During the year 2012, the company had the following summarized activities: a. Purchased short-term investments for $9,000

> The following information pertains to the Lewis Corporation. Required: 1. For each year, compute income tax expense (assume that no taxes have been paid). 2. Explain why tax expense is not simply the amount of cash paid during the year. Year 2011

> The annual report for American Airlines contained the following information: In addition to pension benefits, other postretirement benefits, including certain health care and life insurance benefits (which provide secondary coverage to Medicare), are pr

> As the new vice president for consumer products at Heffner Manufacturing, you are attending a meeting to discuss a serious problem associated with delivering merchandise to customers. Bob Smith, director of logistics, summarized the problem: “It’s easy t

> McDonald’s is one of the world’s most popular fast-food restaurants, offering good food and convenient locations. Effective management of its properties is a key to its success. As the following note in its current annual report indicates, McDonald’s bot

> Write the income statement equation and define each element.

> Vernon Company sells a wide range of goods through two retail stores operated in adjoining cities. Most purchases of goods for resale are on invoices. Occasionally, a short-term note payable is used to obtain cash for current use. The following transacti

> PepsiCo, Inc., manufactures a number of products that are part of our daily lives. Its businesses include Pepsi, Frito-Lay, Tropicana, Quaker, and Gatorade. The company’s annual revenues exceed $22 billion. A recent PepsiCo annual report contained the fo

> Using the data from the previous exercise, complete the following requirements. Required: 1. Determine the financial statement effects for each of the following: (a) issuance of the note on November 1, (b) the impact of the adjusting entry at the end

> Many businesses borrow money during periods of increased business activity to finance inventory and accounts receivable. Neiman Marcus is one of America’s most prestigious retailers. Each Christmas season, Neiman Marcus builds up its inventory to meet th

> Oaks Company has completed the payroll for January 2012, reflecting the following data: Salaries and wages earned..........................$86,000 Employee income taxes withheld...................10,000 FICA payroll taxes*...............................

> Paul Company completed the salary and wage payroll for March 2011. The payroll provided the following details: Salaries and wages earned..................................$200,000 Employee income taxes withheld...........................40,000 Insurance

> East Hill Home Healthcare Services was organized on January 1, 2011, by four friends. Each organizer invested $10,000 in the company and, in turn, was issued 8,000 shares of stock. To date, they are the only stockholders. At the end of 2012, the accounti

> Diane Corporation is preparing its 2012 balance sheet. The company records show the following selected amounts at the end of the accounting period, December 31, 2012: Total assets..........................................................................

> On January 1, 2011, you plan to take a trip around the world upon graduation four years from now. Your grandmother wants to deposit sufficient funds for this trip in a savings account for you. On the basis of a budget, you estimate that the trip currentl

> Many advertisements contain offers that seem too good to be true. A few years ago, an actual newspaper ad offered “a $150,000 house with a zero interest rate mortgage” for sale. If the purchaser made monthly payments of $3,125 for four years ($150,000  ÷

> Identify whether the following transactions affect cash flow from operating, investing, or financing activities, and indicate the effect of each on cash ( + for increase and − for decrease). If there is no cash flow effect,

> In some cases, a manager can engage in transactions that improve the appearance of financial reports without affecting the underlying economic reality. In this chapter, we discussed the importance of liquidity as measured by the quick ratio and working c

> The New York State Lottery Commission ran the following advertisement in a number of New York newspapers: The Lotto jackpot for Wednesday, August 25, 1999, will be $3 million including interest earned over a 20-year payment period. Constant payments will

> The president of a regional wholesale distribution company planned to borrow a significant amount of money from a local bank at the beginning of the next fiscal year. He knew that the bank placed a heavy emphasis on the liquidity of potential borrowers.

> Refer to the financial statements of American Eagle given in Appendix B at the end of this book. Required: 1. What is the amount of accrued compensation and payroll taxes at the end of the most recent reporting year? 2. By what amount did accounts payab

> Refer to the financial statements of American Eagle (Appendix B) and Urban Outfitters (Appendix C) and the Industry Ratio Report (Appendix D) at the end of this book. Required: 1. Compute the quick ratio for each company for the current year. 2. Compare

> Refer to the financial statements of Urban Outfitters given in Appendix C at the end of this book. Required: 1. What is the amount of accrued compensation at the end of the most recent reporting year? 2. By what amount did accounts payable change over t

> For each of the following transactions, determine whether cash flows from operating activities will increase, decrease, or remain the same: a. Purchased merchandise for cash. b. Paid salaries and wages for the last month of the previous accounting peri

> Exxon Mobil Corporation explores, produces, refines, markets, and supplies crude oil, natural gas, and petroleum products in the United States and around the world. The following are accounts from a recent balance sheet of Exxon Mobil Corporation: Requ

> After completing a long and successful career as senior vice president for a large bank, you are preparing for retirement. Visiting the human resources office, you find that you have several retirement options: (1) you can receive an immediate cash paym

> On January 1, 2011, Ellsworth Company completed the following transactions (use an 8 percent annual interest rate for all transactions): a. Borrowed $2,000,000 to be repaid in five years. Agreed to pay $150,000 interest each year for the five years. b.

> State the equation for the total asset turnover ratio and explain how it is interpreted.

> General Mills is a multibillion-dollar company that makes and sells products used in the kitchens of most American homes. The Company’s annual report included the following note: We have a revolving credit agreement expiring in two years that provides fo

> Ford Motor Company is one of the world’s largest companies with annual sales of cars and trucks in excess of $170 billion. A recent annual report for Ford contained the following note: Warranties Estimated warranty costs are accrued for at the time the

> Using data from problem AP9-1, complete the following requirements. Data from AP9-1: Sturgis Company completed the following transactions during 2012. The annual accounting period ends December 31, 2012. Jan. 15 Recorded tax expense for the year i

> Sturgis Company completed the following transactions during 2012. The annual accounting period ends December 31, 2012. Jan. 15 Recorded tax expense for the year in the amount of $125,000. Current taxes payable were $93,000.

> On January 1, 2011, Austin Auto Company decided to accumulate a fund to build an addition to its plant. The company will deposit $320,000 in the fund at each year-end, starting on December 31, 2011. The fund will earn 9 percent interest, which will be ad

> What is asset impairment? How is it accounted for?

> Define goodwill. When is it appropriate to record goodwill as an intangible asset?

> Define intangible asset. What period should be used to amortize an intangible asset with a definite life?

> Which of the following is not a financing activity on the statement of cash flows? a. When the company lends money. b. When the company borrows money. c. When the company pays dividends. d. When the company issues stock to shareholders.

> When equipment is sold for more than net book value, how is the transaction recorded? For less than net book value? What is net book value?

> Explain why revenues are recorded as credits and expenses as debits.