As a newly hired staff accountant, you are assigned the responsibility of physically counting inventory at the end of the year. The inventory count proceeds in a timely fashion. The inventory is outdated, however. You suggest that the inventory cannot be sold for the cost at which it is carried and that the inventory should be written down to a much lower level. The controller replies that experience has taught her how the market changes and she knows that the units in the warehouse will be more marketable again. The company plans to keep the goods until they are back in style. Required: 1. What effect will writing off the inventory have on the current year’s income? 2. What effect does not writing off the inventory have on the year-end balance sheet? 3. What factors should you consider in deciding whether to persist in your argument that the inventory should be written down? 4. If you fail to write down the inventory, do outside readers of the statements have information that is a faithful representation? Explain your answer. 5. Assume that the company prepares its financial statements in accordance with IFRS. Is it necessary that the inventory be written down?
> The new bookkeeper for Darby Corporation is getting ready to mail the daily cash receipts to the bank for deposit. Because his previous job was at a bank, he is aware that the bank ‘‘credits’â&#
> Each account has a normal balance. Classify each of the following items found on Vail Resorts’ 2015 financial statements included in the Form 10-K for the year ended July 31, 2015, according to (1) whether it is a revenue (R), expense (
> On December 31, 2017, Baxter Company reported $8,000 in prepaid insurance on its balance sheet. The insurer requires Baxter to pay the annual premium of $24,000 in advance. Required: 1. How much will Baxter recognize each month in insurance expense? 2.
> On September 1, Northhampton Industries signed a six-month lease for office space, which is effective September 1. Northhampton agreed to prepay the rent and mailed a check for $12,000 to the landlord on September 1. Assume that Northhampton prepares adj
> Refer to Panera Bread’s statement of cash flows for the year ended December 29, 2015, as reproduced at the end of the book. Panera Bread’s statement of cash flows: Required: 1. What amount did the company spend on a
> Prepare a table to summarize the following transactions as they affect the accounting equation. Use the format in Exhibit 3-1. Exhibit 3-1: 1. Services provided on account of $1,530 2. Purchases of supplies on account for $1,365 3. Services provided f
> Following are a number of users of accounting information and examples of questions they need answered before making decisions. Fill in each blank to indicate whether the user is most likely to find the answer by looking at the income statement (IS), the
> Gaynor Corporation’s partial income statement is as follows: Sales …………………………………………………………………………………………. $1,200,000 Cost of sales …………………………………………………………………………………… 450,000 Selling expenses ……………………………………………………………………………… 60,800 General and administrative ex
> Some headings and/or items are used on either the single- or multiple-step income statement. Some are used on both. Identify each of the following items as single-step (S), multiple-step (M), both formats (B), or not used on either income statement (N).
> Potential stockholders and lenders are interested in a company’s financial statements. Identify the statement—balance sheet (BS), income statement (IS), or retained earnings statement (RE)—on which ea
> Refer to Chipotle’s balance sheet reproduced in the chapter. Chipotle’s Balance Sheet: Balance sheets for Chipotle at the end of two recent years are shown in Exhibit 1-7. For comparative purposes, the company reports
> For each of the following cases, fill in the blank with the appropriate dollar amount. Sara's Coffee Shop Amy's Deli Jane's Bagels $ 35,000 $ $ 78,000 Net sales Cost of goods sold 45,000 Gross profit 7,000 18,000 Selling expenses 3,000 9,000 General
> Operating expenses are subdivided between selling expenses and general and administrative expenses when a multiple-step income statement is prepared. Identify each of the following items as a selling expense (S) or general and administrative expense (G&a
> Baldwin Corp. reported the following current accounts at the end of two recent years: Required: 1. Compute Baldwin’s current ratio at the end of each of the two years. 2. How has Baldwin’s liquidity changed at the en
> Two Wheeler Cycle Shop buys all of its bikes from one manufacturer, Baxter Bikes. On average, bikes are on hand for 45 days before Two Wheeler sells them. The company sells some bikes for cash but also extends credit to its customers for 30 days. Requir
> Refer to the income statements for Chipotle and Panera Bread reproduced at the back of the book. Chipotle reproduced: Panera Bread: Required: 1. Which is the largest expense for each company in the most recent year? What is its dollar amount? Explai
> Most financial reports contain the following list of basic elements. For each element, identify the person(s) who prepared the element and describe the information a user would expect to find in each element. Some information is verifiable; other informa
> Identify each of the following items as operating (O), investing (I), financing (F), or not on the statement of cash flows (N). 1. Paid for supplies 2. Collected cash from customers 3. Purchased land (held for resale) 4. Purchased land (for construc
> Landon Corporation was organized on January 2, 2015, with the investment of $100,000 by each of its two stockholders. Net income for its first year of business was $85,200. Net income increased during 2016 to $125,320 and to $145,480 during 2017. Landon
> The income statement of Holly Enterprises shows operating revenues of $134,800, selling expenses of $38,310, general and administrative expenses of $36,990, interest expense of $580, and income tax expense of $13,920. Holly’s stockholders’ equity was $28
> Using the accounting equation, answer each of the following independent questions. 1. Burlin Company starts the year with $100,000 in assets and $80,000 in liabilities. Net income for the year is $25,000, and no dividends are paid. How much is owners’ eq
> Ginger Enterprises began the year with total assets of $500,000 and total liabilities of $250,000. Using this information and the accounting equation, answer each of the following independent questions. 1. What was the amount of Ginger’s owners’ equity a
> Braxton Corp. was organized on January 1 to operate a limousine service to and from the airport. For each of the following business activities, indicate whether it is a financing (F), investing (I), or operating (O) activity. 1. Issued shares of sto
> The following information is available from the records of Prestige Landscape Design Inc. at the end of the year: Required: Use the previous information to answer the following questions. 1. What is Prestige’s net income for the year?
> Classify each of the following items found in the company’s financial statements included in the Form 10-K for the year ended December 31, 2015, according to (1) whether it belongs on the income statement (IS) or balance sheet (BS) and
> For each of the following cases, fill in the blank with the appropriate dollar amount. Case 1 Case 2 Case 3 Case 4 Total assets, end of period Total liabilities, end of period $40,000 $4 $75,000 $50,000 15,000 25,000 10,000 Capital stock, end of per
> Refer to Panera Bread’s balance sheet reproduced at the back of the book to answer the following questions. Panera Bread’s balance sheet: Required: 1. Which is the largest of Panera Bread’s curren
> The following amounts are available from the records of Coaches and Carriages Inc. at the end of the years indicated: Required: 1. Compute the changes in Coaches and Carriages owners’ equity during 2016 and 2017. 2. Compute the amount
> Oak and Maple both provide computer consulting services to their clients. The following are the current assets for each company at the end of the year. (All amounts are in millions of dollars.) Required: As a loan officer for First National Bank of Ver
> R Montague and J Capulet distribute films to movie theatres. Following are the current assets for each distributor at the end of the year. (All amounts are in millions of dollars.) Required: As a loan officer for First National Bank of Verona Heights,
> You are the controller of a rapidly growing mass merchandiser. The company uses a periodic inventory system. As the company has grown and accounting systems have developed, errors have occurred in both the physical count of inventory and the valuation of
> You are the controller for Georgetown Company. At the end of its first year of operations, the company is experiencing cash flow problems. The following information has been accumulated during the year: Purchases January ……………………………………………………………………. 1,00
> Darrell Keith is starting a new business. He plans to keep a tight control over it. Therefore, he wants to know exactly how much gross profit he earns on each unit that he sells. Darrell sets up an elaborate numbering system to identify each item as it i
> Caroline’s Candy Corner sells gourmet chocolates. The company buys chocolates in bulk for $5 per pound plus 5% sales tax. Credit terms are 2/10, n/25, and the company always pays promptly to take advantage of the discount. The chocolates are shipped to C
> Emblems For You sells specialty sweatshirts. The purchase price is $10 per unit plus 10% tax and a shipping cost of 50¢ per unit. When the units arrive, they must be labeled, at an additional cost of 75¢ per unit. Emblems purchased, received, and labeled
> Jensen Inc., a graphic arts studio, is considering the purchase of computer equipment and software for a total cost of $18,000. Jensen can pay for the equipment and software over three years at the rate of $6,000 per year. The equipment is expected to la
> After you have gained five years of experience with a large CPA firm, one of your clients, Duke Inc., asks you to take over as chief financial officer for the business. Duke advises its clients on the purchase of software products and assists them in ins
> Refer to the financial information for Chipotle and Panera Bread reproduced at the back of the book for the information needed to answer the following questions. Chipotle reproduced: Panera Bread: Required: 1. Compute each company’
> Simon Fraser started a landscaping and lawn-care business in April by investing $20,000 cash in the business in exchange for capital stock. Because his business is in the Midwest, the season begins in April and concludes in September. He prepared the fol
> Shelia Young started a real estate business at the beginning of January. After approval by the state for a charter to incorporate, she issued 1,000 shares of stock to herself and deposited $20,000 in a bank account under the name Young Properties. Becaus
> As an investor, you are considering purchasing stock in a chain of theaters. The annual reports of several companies are available for comparison. Required: Prepare an outline of the steps you would follow to make your comparison. Start by listing the f
> Upon graduation from MegaState University, you and your roommate decide to start your respective careers in accounting and salmon fishing in Remote, Alaska. Your career as a CPA in Remote is going well, as is your roommate’s job as a commercial fisherman
> You have saved enough money to pay for your college tuition for the next three years when a high-school friend comes to you with a deal. He is an artist who has spent most of the past two years drawing on the walls of old buildings. The buildings are abo
> Charles, a financial consultant, has been self-employed for two years. His list of clients has grown, and he is earning a reputation as a shrewd investor. Charles rents a small office, uses the pool secretarial services, and has purchased a car that he i
> Mountain Home Health Inc. provides home nursing services in the Great Smoky Mountains of Tennessee. When contacted by a client or referred by a physician, nurses visit the patient and discuss needed services with the physician. Mountain Home Health earns
> Patterson Company is a large diversified business with a unit that sells commercial real estate. As a company, Patterson has been profitable in recent years with the exception of the real estate business, where economic conditions have resulted in weak s
> You were recently hired by a large retail bookstore chain. Your training involved spending a week at the largest and most profitable store in the district. The store manager assigned the head cashier to train you on the cash register and closing procedur
> As controller of a widely held public company, you are concerned with making the best decisions for the stockholders. At the end of its first year of operations, you are faced with the choice of method to value inventory. Specific identification is out o
> Refer to the financial information for Chipotle and Panera Bread reproduced at the back of the book and answer the following questions. Chipotle reproduced: Panera Bread: 1. What was the total revenue for each company for the most recent year? By wh
> You have won a lottery! You will receive $200,000, after taxes, each year for the next five years. Required: Describe the process you will go through in determining how to invest your winnings. Consider at least two options and make a choice. You may co
> The Financial Accounting Standards Board requires companies to supplement their consolidated financial statements with disclosures about segments of their businesses. To comply with this standard, the notes to the financial statements included in Time Wa
> The Coca-Cola Company and Subsidiaries reported the following amounts in various statements included in its Form 10-K for the year ended December 31, 2015. (All amounts are stated in millions of dollars.) Net income attributable to shareowners of The Co
> Hometown Cleaners Inc. operates a small dry-cleaning business. The company has always maintained a complete and accurate set of records. Unfortunately, the company’s accountant left in a dispute with the president and took the 2017 fina
> Century Company was organized 15 months ago as a management consulting firm. At that time, the owners invested a total of $50,000 cash in exchange for stock. Century purchased equipment for $35,000 cash and supplies to be used in the business. The equipm
> Green Bay Corporation began business in July 2017 as a commercial fishing operation and a passenger service between islands. Shares of stock were issued to the owners in exchange for cash. Boats were purchased by making a down payment in cash and signing
> The following list, in alphabetical order, shows the various items that regularly appear on the financial statements of Maple Park Theatres Corp. The amounts shown for balance sheet items are balances as of September 30, 2017 (with the exception of retai
> Dave is the president of Avon Consulting Inc. Avon began business at the beginning of the current year. The company’s controller is out of the country on business. Dave needs a copy of the company’s balance sheet for a
> The following items are available from records of Freescia Corporation at the end of the current year: Required: Prepare a balance sheet. Hint: Not all of the items listed should appear on a balance sheet. For each non-balance-sheet item, indicate wher
> Joe Hale opened a machine repair business in leased retail space, paying the first month’s rent of $300 and a $1,000 security deposit with a check on his personal account. He took the tools, worth about $7,500, from his garage to the sh
> Millie Abrams opened a ceramic studio in leased retail space, paying the first month’s rent of $300 and a $1,000 security deposit with a check on her personal account. She took molds and paint, worth about $7,500, from her home to the s
> Heidi’s Bakery Inc. operates a small pastry business. The company has always maintained a complete and accurate set of records. Unfortunately, the company’s accountant left in a dispute with the president and took the
> Fort Worth Corporation began business in January 2017 as a commercial carpet-cleaning and drying service. Shares of stock were issued to the owners in exchange for cash. Equipment was purchased by making a down payment in cash and signing a note payable
> The following list, in alphabetical order, shows the various items that regularly appear on the financial statements of Sterns Audio Book Rental Corp. The amounts shown for balance sheet items are balances as of December 31, 2017 (with the exception of r
> Pete is the president of Island Enterprises. Island Enterprises began business at the beginning of the current year. The company’s controller is out of the country on business. Pete needs a copy of the company’s balanc
> Listum & Sellum Inc. is a medium-sized midwestern real estate company. It was founded five years ago by its two principal stockholders, Willie Listum and Dewey Sellum. Willie is president of the company, and Dewey is vice president of sales. Listum &
> The following items are available from the records of Victor Corporation at the end of the current year: Required: Prepare a balance sheet. Hint: Not all of the items listed should appear on a balance sheet. For each non-balance-sheet item, indicate wh
> You have inherited $1 million! Required: Describe the process you will go through in determining how to invest your inheritance. Consider at least two options and choose one. You may consider the stock of a certain company, bonds, real estate investment
> The Financial Accounting Standards Board requires companies to supplement their consolidated financial statements with disclosures about segments of their businesses. To comply with this standard, the notes to the financial statements included in Marriot
> Brunswick Corporation reported the following amounts in various statements included in its Form 10-K for the year ended December 31, 2015. (All amounts are stated in millions of dollars.) Net earnings for 2015 $ 241.4 Cash dividends paid in 2015 …………………
> The following balance sheet items, listed in alphabetical order, are available from the records of Ruth Corporation at December 31, 2017: Required: 1. Prepare in good form a classified balance sheet as of December 31, 2017. 2. Compute Ruthâ€
> The following costs are incurred by a retailer: 1. Display fixtures in a retail store 2. Advertising 3. Merchandise for sale 4. Incorporation (i.e., legal costs, stock issue costs) 5. Cost of a franchise 6. Office supplies 7. Wages and salaries 8. Comput
> Joseph Knapp, a newly hired accountant wanting to impress his boss, stayed late one night to analyze the office supplies expense. He determined the cost by month for the previous 12 months of each of the following: computer paper, copy paper, fax paper,
> Comparative income statements for Grammar Inc. are as follows: Required: The president and management believe that the company performed better in 2017 than it did in 2016. Write the president’s letter to be included in the 2017 annua
> Colorado Corporation was organized at the beginning of the year, with the investment of $250,000 in cash by its stockholders. The company immediately purchased an office building for $300,000, paying $210,000 in cash and signing a three-year promissory n
> Refer to the list of income statement items in Problem 2-6. Assume that Shaw Corporation classifies all operating expenses into two categories: (1) selling and (2) general and administrative. Problem 2-6: The following income statement items, arranged
> As assistant controller for a small consulting firm, you are responsible for recording and posting the daily cash receipts and disbursements to the ledger accounts. After you have posted the entries, your boss, the controller, prepares a trial balance an
> The following income statement items, arranged in alphabetical order, are taken from the records of Shaw Corporation for the current year: Required: 1. Prepare a single-step income statement for the current year. 2. What weaknesses do you see in this f
> The balance sheet of Stevenson Inc. includes the following items: Required: 1. Determine the current ratio and working capital. 2. Beyond the information provided in your answers to (1), what does the composition of the current assets tell you about St
> The following items, in alphabetical order, are available from the records of Walker Corporation as of December 31, 2017 and 2016: Required: 1. Calculate the following as of December 31, 2017, and December 31, 2016: a. Working capital b. Current ratio
> Franklin Co., a specialty retailer, has a history of paying quarterly dividends of $0.50 per share. Management is trying to determine whether the company will have adequate cash on December 31, 2018, to pay a dividend if one is declared by the board of d
> The following income statements were provided by Gleeson Company, a retailer: Required: 1. Identify each income statement as either single- or multiple-step format. 2. Convert the 2016 income statement to the same format as the 2017 income statement.
> As chief lending officer for a bank, you need to decide whether to make a loan to The Coca-Cola Company. The current items, listed in alphabetical order, are taken from the consolidated balance sheets of The Coca-Cola Company and its competitor PepsiCo a
> The following costs are incurred by a retailer: 1. Point-of-sale systems in a retail store 2. An ad in the yellow pages 3. An inventory-control computer software system 4. Shipping merchandise for resale to chain outlets Required: For each cost, explain
> Jane Erving, a newly hired accountant wanting to impress her boss, stayed late one night to analyze the long-distance calls by area code and time of day placed. She determined the monthly cost for the previous 12 months by hour and area code called. Req
> Comparative income statements for Thesaurus Inc. are as follows: Required: The president and management believe that the company performed better in 2017 than it did in 2016. Write the president’s letter to be included in the 2017 ann
> Wisconsin Corporation was organized at the beginning of the year with the investment of $400,000 in cash by its stockholders. The company immediately purchased a manufacturing facility for $300,000, paying $150,000 in cash and signing a five-year promiss
> You are controller for an architectural firm whose accounting year ends on December 31. As part of the management team, you receive a year-end bonus directly related to the firm’s earnings for the year. One of your duties is to review the transactions re
> Refer to the list of income statement items in Problem 2-6A. Assume that Corbin Enterprises classifies all operating expenses into two categories: (1) selling and (2) general and administrative. Problem 2-6A: The following income statement items, arran
> The following income statement items, arranged in alphabetical order, are taken from the records of Corbin Enterprises for the current year: Required: 1. Prepare a single-step income statement for the current year. 2. What weaknesses do you see in this
> The balance sheet of Kapinski Inc. includes the following items: Required: 1. Determine the current ratio and working capital. 2. Kapinski appears to have a positive current ratio and a large net working capital. Why would it have trouble paying bills
> The following items, in alphabetical order, are available from the records of Quinn Corporation as of December 31, 2017 and 2016: Required: 1. Calculate the following as of December 31, 2017, and December 31, 2016: a. Working capital b. Current ratio 2
> The following balance sheet items, listed in alphabetical order, are available from the records of Singer Company at December 31, 2017: Required: 1. Prepare a classified balance sheet as of December 31, 2017. 2. Compute Singer’s curre
> Roosevelt Inc., a consulting service, has a history of paying annual dividends of $1 per share. Management is trying to determine whether the company will have adequate cash on December 31, 2018, to pay a dividend if one is declared by the board of direc
> The following income statements were provided by Chisholm Company, a wholesale food distributor: Required: 1. Identify each income statement as either single- or multiple-step format. 2. Restate each item in the income statements as a percentage of sal
> As chief lending officer for a bank, you need to decide whether to make a loan to Starwood Hotels & Resorts Worldwide, Inc. The current items, listed in alphabetical order, are taken from the consolidated balance sheets of Starwood Hotels & Resor
> Taggart Corp. records adjustments each month before preparing monthly financial statements. The following selected account balances on May 31, 2017 and June 30, 2017, reflect month-end adjustments: Required: 1. The company purchased a 36-month insuranc
> Bob Reynolds operates a real estate business. A list of accounts on April 30, 2017, before any adjustments are recorded, appears as follows: Cash …………………………………………………………………………………………… $15,700 Prepaid Insurance ……………………………………………………………………………… 450 Office Sup
> Susan Spiffy, owner of Spiffy Cleaners, a drive-through dry cleaners, would like to expand her business from its current location to a chain of cleaners. Revenues at the one location have been increasing an average of 8% each quarter. Profits have been i
> The following financial statements are available for Elm Corporation for its first month of operations: Required: Using the format illustrated in Exhibit 3-1, prepare a table to summarize the transactions entered into by Elm Corporation during its fir
> Expert Consulting Services Inc. was organized on March 1 by two former college roommates. The corporation provides computer consulting services to small businesses. The following transactions occurred during the first month of operations: Required: 1.
