Assume that Cathedral Enterprises, which is in its first year of operations (i.e., 2020 with a December 31 year end) entered into the following transactions. Show how the six transactions affect the accounting equation, and prepare an income statement, statement of shareholders’ equity, balance sheet, end statement of cash flows. 1. Shareholders contributed $10.000 cash. 2. Performed services for $8,000, receiving $6,000 in cash and n $2,000 accounts receivable. 3. Incurred expenses of $6,000. Paid $3,000 in cash, and $3,000 is still owed. 4. Purchased property for $1 2,000. Paid $2,000 in cash and signed a long-term note for the remainder. 5. Paid the shareholders $400 in the form of a dividend. 6. Sold one-half of the property purchased in (4) for $7,000 cash.
> Fortune magazine ran an article titled “New Ethics or No Ethics? Questionable Behavior Is Silicon Valley’s Next Big Thing,” which recounts stories of Internet companies that aggressively inflate their net income. In many cases, the actions of these compa
> United Continental Holdings, the parent of United Airlines and Continental Airlines, signed contracts with its major creditors (mostly banks) that require the company to maintain a minimum cash balance of $3.0 billion and a minimum ratio of cash flow to
> In late 2009, General Electric, Vivendi SA, and the cable television company Comcast entered into a complicated transaction to change the ownership of the television and production company NBC Universal. Prior to the transaction, GE owned 80 percent of N
> The huff Street Journal once reported, “For as long as companies have published cash-flow statements, investors have used them to gauge the credibility of earnings. The most closely watched portion of these reports is the part called cash flow from opera
> The following information was taken from the 2019 annual report—statements of cash flows—of United Technologies Corporation (UTC), a diversified manufacturing conglomerate (dollars in millions). INSTRUCTIONS: What does
> The following information was taken from the 2019 annual reports—statements of cash flow f TJ Maxx, Pier One, and Pepsico (dollars in millions). INSTRUCTIONS: Each of these companies shows a different cash flow pattern. Explain what the
> The following excerpt was taken from a financial report of Cummins Engine Company, a manufacturer of heavy-duty truck engines. Loan agreements contain covenants that impose restrictions on the payment of dividends and distributions of stock, require main
> On its 2019 income statement, AT&T reports a 7.2 percent increase in revenue from $152 billion in 2018 to $163 billion in 2019. Yet net income dropped by 28 percent from $19.4 billion to $13.9 billion. Interestingly, a line item on the statement entitled
> Recently, Netflix released its earnings for the first quarter of the year. In the announcement the company highlighted a number of its accomplishments, including: • Surpassing 100 million subscribers using online streaming services • Strong interest in t
> For over a year, Center Energy Corporation, a utility company in Ohio, had negative cash flow from operating activities, caused primarily by the escalating costs of one of its nuclear plants outside Cleveland. Yet the company reported positive earnings a
> Whitney Tilson, a noted analyst, warns investors in an article in The Motley Fool that more than any other type of company, financial companies have immense discretion regarding what earnings to report. The key is the rate of loan losses that they exp
> The annual Form 20-F published by Unilever, which uses IFRS, notes that during a particular year assets were written down by 246 million euros to market value for damaged, obsolete, and lost inventories. It also noted that the market value of certain inv
> The Wall/ Street Journal reported in early 2010 that Citi Bank had acknowledged a series of errors in accounting for the investment in the firm by the U.S. government. These errors overstated the company’s quarterly earnings in 2008 rind 2009, rind were
> Much has been written about the accounting fraud and subsequent bankruptcy of WorldCom. The Baltimore Run reported that the ”fraud was brazen (and) easy to spot. The scheme was not complicated: the company’s financial officers recorded routine maintenanc
> General Electric (GE) depreciates its fixed assets using a method that recognizes a relatively large portion of depreciation in the early years of an asset’s useful life. IBM, on the other hand, uses the straight-line method. INSTRUCTIONS: Briefly descri
> MarketWatch and the news organization Reuters posted the following announcement. Excluding One-Time Expenses. Johnson & Johnson Beats Estimates Johnson & Johnson released its fourth quarter 2006 earnings ... announcing that net income rose to $2.17 billi
> Celadon Trucking filed for bankruptcy in December 2019 due to an inability to cover its debt payments. As part of its agreement to borrow money from lenders, the company has debt restrictions that require it to maintain minimum values of certain financia
> Travel booking websites (like Expedia, Travelocity, and Priceline) make their money by charging a customer an amount (say. $1 ,000) that is larger than the amount they pay the airline or hotel that provides the actual service to the customer (say, $900).
> Merck & Co. declared dividends (dollars in millions) of $5,820 (2019), $5,3 13 (2018), and $5,177 (2017). Cash payments for dividends reported on the statement of cash flows for the three years were $5,695 (2019), $5,172 (2018), and $5,167 (2017). Divide
> Most airlines offer promotional programs in which passengers accumulate miles over time; when they have earned enough miles, they receive free tickets. In the past, airlines did not make any accounting entries for these free tickets. The free rider merel
> You can review the Disney SEC Form 10-K by searching for “Disney Annual Report” online. This chapter listed and defined ten concepts, separated into four basic assumptions, four principles of measurement, and two exceptions. INSTRUCTIONS: Review the Disn
> The FASB requires that companies report the fair value (i.e., net realizable value) of their equity and debt securities on the balance sheets. The FASB described fair value as a market exit price—an estimate of the price an entity would have realized if
> The annual report of KeyCorp, a regional bank holding company headquartered in Cleveland, indicates that short-term investments are listed on the balance sheet at net realizable value. In addition to its short-term investments, Key notes that it also has
> Enron was one of the world’s largest power companies before it went bankrupt in one of the most spectacular financial ligands in history. One aspect of the fraud involved the creation of a separate entity that borrowed a large amount of money and then us
> You can review the Disney SEC Form 10-K by searching for “Disney Annual Report” online. INSTRUCTIONS: Review the Disney 2019 Form 10-K and complete the following: a. Compute net income as a percent of revenues for 2019, 2018, and 2017. b. Compute current
> Up until 2007, non-U.S. firms that published IFRS-based financial statements and wished to raise capital on the U.S. stock markets (e.g., New York Stock Exchange) were required to file with the SEC a Form 20-F that included reconciliations of both net in
> Compute the present value of the payment patterns provided below, given an 8 percent discount rate. a. $50 at the end of Year 2; $100 at the end of Year 5; $80 at the end of Year 8. b. $100 at the end of Years 1, 2, 3, 4; $100 at the end of Year 8. c. $6
> Compute the present value of $10,000 received at the beginning of each year over the following time periods at the following discount rates. Complete the following table:
> Compute the present value of $10,000 received at the end of each year over the following time periods at the following discount rates. Complete the following table:
> The following information was taken from the 2019 annual report of Coca-Cola ( dollar and share amounts in millions): a. At what average price did the company repurchase its shares in 2017? b. At what average price did the company repurchase its shares i
> You are investment analyst for Timken Brothers, a small brokerage firm.
> If $150 were invested at the beginning of each year over the following time periods at the following interest rates, how large a sum could be withdrawn at the end of the final time period? Complete the following table:
> If $150 were invested at the end of each year over the following time periods at the following interest rates, how large a sum could be withdrawn at the end of the final time period? Complete the following table:
> Compute the present value of $10,000 received at the end of the following time periods at the following discount rates. Complete the following table:
> If $150 were invested today, how large a sum could be withdrawn at the end of the following time periods at the following compound interest rates? Complete the following table:
> BC Inc. began operations in early 2018. Summaries of the statements of cash flows for 2020, 2019, and 2018 follow: a. Compute the missing dollar amounts, and briefly comment on the company's cash management policies during the three-year period. b. Does
> Assume that the following financial ratios are calculated for Royals Corporation in 2020: a. What was the return on equity for Royals Corporation in 2020? b. If Royals Corporation keeps all of its other ratios constant in 2021 but increases its capital s
> The following ratios were computed from the financial statements of LBS Products: Use the ROE model to analyze these ratios, and comment on the company's performance from 2018 to 2020.
> The following ratios were computed from the financial statements of INSEAD Incorporated: Use the ROE model to analyze these ratios, and comment on the company's performance from 2018 to 2020.
> Merck, a major pharmaceutical, generated $9.78 billion in net income for the year ended December 31, 2019. 1. The company paid $5.82 billion in dividends during 2019. 2. Merck stock was selling for $73.59 per share on January l , 2019, and for $90.95 per
> The following information refers to the financial records of McDonald's Corporation over a three-year period (dollar amounts in millions except share price). a. Compute dividends declared as a percentage of net income during each of the three years. b. C
> When Radio Shack announced a 2: 1 stock split, the company had 97 million shares outstanding, trading at $100 per share. a. Estimate the number of shares outstanding and market price per share immediately after the split. b. Estimate the company's overal
> At the end of 2020, Montvale Associates borrowed $120,000 from the Bay liner Bank. The debt covenant specified that Montvale's debt/equity ratio could not exceed 1.5: I during the period of the loan. A summary of Montvale's balance sheet after the loan f
> Excerpts from the fiscal 2019 financial report of Cisco Systems, a leading Internet networker, are provided below (dollars in millions). From the information below, compute ROE, ROA, capital structure leverage, profit margin, and total asset turnover for
> Small and Associates, a small manufacturing firm, entered into the following cash transactions during January 2020: 1. Issued 600 shares of stork for $25 each. 2. Sold services for $4,000 cash. 3. Incurred and paid payroll of $ 1,600. 4. Purchased land a
> The following cash T-account for Miller Manufacturing summarizes all the transactions affecting cash during 2020 with a December 3 I closing date. a. Compute the ending cash balance. b. Prepare a statement of cash flows using the direct method.
> The following information was taken from the 2019 annual report of Bristol-Myers Squibb, a world-leading drug company (dollars in millions). Prepare an income statement, balance sheet, and statement of cash flows, and comment on the financial performance
> The following accounts and balances were taken from the records of American Airlines (dollars in millions). Identify each account as an income statement or balance sheet account. Where is each account reflected in the basic accounting equation?
> The Brown Corporation experienced the following financial events on October 10, 2020: 1. The company entered into a new contract with the employees’ union that calls for a $2.00 per hour increase in wages, a longer lunch break, and cost-of-living adjustm
> Total each asset, liability, rind shareholders’ equity account in E4.2, and prepare an income statement, a statement of shareholders’ equity, a balance sheet, and a statement of cash flows. Assume that the current year (i.e., 2020) is the company's first
> Tony’s Business is a small retailer that began operations on January 1. 2020. During 2020, the following transactions occurred: 1. Tony contributed $20,000 of his own money to the business. 2. $60,000 in cash was borrowed from the bank. 3. Property, plan
> The following information was taken from the 2019 statement of shareholders' equity of Home Depot (dollars in millions): a. What portion of net income was paid out in dividends during the year? b. Explain how the issuance of shares affected the basic acc
> Excerpts from the financial statements of Dunbar Manufacturing are provided below. a. Compute the payroll payable as of December 3 I , 2019. b. Compute the cash payments for rent during 2020. c. Compute the accounts receivable as of December 31, 2020.
> Condensed balance sheets for 2017 and 2018 and the world’s largest tire company, are as follows (dollars in millions). 2018 income statement for Goodyear, a. Assume that early in 2019 Goodyear is considering the following transactions (
> Consider the same transactions as in E4—1, but this time complete the following chart, using a separate sheet of paper.
> Peters Company was in business for two years, during which time it entered into the following transactions: Year 1. 1. The owners contributed $24.000 cash. 2. At the beginning of the year, rented a warehouse for two years with a prepaid rent payment of $
> Rahal and Watson, a small manufacturing company, entered into the following cash trans- actions during January 2020: 1. Issued 800 shares of common stock for $30 each. 2. Collected $3,900 on outstanding accounts receivable. 3. Paid payroll for the month
> The following journal entries were recorded by Lauren Retailing during the month of July: a. Prepare an income statement and the operating section of a statement of cash flows. b. Explain why net income is not equal to net cash flow from operating activi
> Washington Forest Products began operations on January I, 2020. On December 31, 2020, the company’s accountant ascertains that the following amounts should be reported as expenses on the income statement: A review of the companyâ&
> During 2018, Starbucks purchased fixed assets costing approximately $ 1.8 billion. Assume that the company purchased the assets at the beginning of the year, uses straight-line depreciation, and normally depreciates its equipment over four years. Assume
> The Hurst Corporation pays its employees every Friday for the five-day week just ended. On January 1, 2021, the company paid its employees $70,000 for the week beginning Monday, December 28, 2020. a. Assuming that the employees earned salaries and wages
> Hog Heaven Rib Joint made the following journal entries on December 31, 2020: Place each of the transactions above in one of the following five categories: (1) operating activity cash flow, (2) investing activity cash flow, (3) financing activity cash
> During fiscal 2020, Delta Airlines, which leases most of its aircraft, paid approximately $1.3 billion on its lease contracts-$269 million on financing leases and a little over $1 billion on operating leases. a. How did the lease payments on contracts wi
> Eaton Enterprises made the following adjusting journal entries on December 31, 2020: a. Give a brief explanation for each of the above entries. b. Classify each of the above entries as either a cost expiration adjusting entry or an accrual adjusting entr
> The following cash T-account for Holcomb Manufacturing summarizes n1l ihe transactions affecting cash during 2020. a. Compute the ending cash balance. b. Prepare a statement of cash flows (direct method).
> Ed’s Lawn Service entered into the following transactions during 2020, its first year of operations: 1. Collected $12,000 in cash from shareholders. 2. Borrowed $5,000 cash from a brink. 3. Purchased two parcels of property for a total of $10,00d in cash
> On a separate piece of paper, complete the following chart to show the effect of each transaction on the accounting equation.
> The Atlantic Bears, a major league sports team, began the season with five home games to be played in March. Other financial information follows: • During January and February 2020, the team received $600,000 ($200,00d in January and $400,000 in February
> All large U.S. companies have policies in which all expenditures (i.e., costs) under a certain dollar amount arc expensed. Many of these costs are for assets, items that are useful to the company beyond the period in which they were purchased. a. Explain
> RDP and Brothers purchased a panel truck for $25,000 on January 1, 2020. It estimated the life of the truck is be five years and estimated its value to be zero at the end of the five years, and it will be depreciated by an equal amount in each of the fiv
> Micro IT manufactures and sells computers. Each of its computers includes Micro lT soft- ware that is created by the company and included in the sales price of the computer. As part of the sales agreement, Micro IT provides updates to its software for fo
> Cascades Enterprises ordered 4,000 brackets from McKey and Company on December 1, 2020, for a contracted price of $40,000. McKey completed manufacturing the brackets on January 17 of the next year and delivered them to Cascades on February 9. McKey recei
> The 2019 annual report for Cisco Systems contains the following information (dollars in millions): On the income statement, Cisco reported that the cost of sales related to the inventory was $14.9 billion ($14.4 billion for the year ending 7/28/2018).
> Hewlett-Packard issued zero coupon (stated interest rate = zero) bonds with a face value of $1.8 billion, due in ten years, for proceeds of $968 million. a. What is the life of these bonds? b. What is the stated interest rate on these bonds? c. Estimate
> Name the valuations that are used for each of the asset and liability accounts shown here. Some assets and liabilities can use more than one type of valuation.
> Palomar Paper Products purchased Fund in 2002 for $ 15,000 cash. The company has held the land since that time. In 2020. Palomar purchased another tract of land for $15,000 cash. Assume that prices in general increased by 60 percent from 20£12 to 2020. a
> At the end of every year, Nike and Adidas record inventory write-downs for items (footwear and apparel) that have lost value due to a variety of reasons, such as changing styles, defective merchandise, and lost items. Occasionally, the values of some of
> Recently, Boeing has maintained a cash balance of over $10 billion. At an annual inflation rate of about 2 percent does cash have more or less purchasing power at the end of a given year than at the beginning’? By how much? Is such a gain or loss reflect
> The information below was taken from the 2019 annual report of Cisco Systems, a world- wide leader in networking for the Internet. Compute the missing amounts in the following table. Describe and evaluate the company’s cash management a
> Suppose that La-Z-Boy in E2.7 signed a debt covenant specifying that current assets must exceed current liabilities by $300 million. Assume further that in early January 2020, the company planned to purchase a 5300-million piece of machinery and had two
> la-Z-Boy Incorporated included the following information in its 2019 annual report (dollars in millions). Define solvency and discuss how this information might be useful in assessing the company’s solvency position. What drawbacks are
> At the end of 2020, a fast-growing advertising agency had a negative balance of $596 million in its retained earnings account. Compute the missing amounts in the following table, and comment on the company’s performance. Specifically, a
> Duke Energy Corporation is one of America’s leading diversified energy companies. At the end of 2019, the company had a balance in its retained earnings account of $4.1 billion. Compute the missing amounts in the following table and com
> Assume a banker is interested in finding answers to the following questions about a company applying for a loan. In each case, indicate which of the four financial statements the banker should examine lust to answer the question. If appropriate, also ind
> The following table was summarized from the 2019 annual report of U.S. Steel: Long-term debt (in millions): a. Briefly explain the transactions entered into by U.S. Steel during 2019. Which financial statements were affected? b. Assuming an interest rate
> Listed below are accounts that may appear on either the balance sheet or the income statement. a. Equipment b. Service Revenue c. Retained Earnings d. Salaries and Wages Expense e. Patent f. Cost of Goods Sold g. Common Stock h. Dividends Payable
> Listed below are eight transactions. In each case, identify whether the transaction is an example of financing, investing, or opening activities and which of the financial statements it would affect. 1. Company borrows $50,000 in cash, signing a ten-year
> Mary began a business, and after collecting $30,000 from an equity investor and borrowing $15,000 from a bank, she purchased a piece of land for $40,000. During the year, she leased the land to Karl and received $12,000 in cash, paying $14,000 cash for e
> George began a property rental business, and after collecting $6,000 from an equity inves- tor and borrowing $5,000 from a bank, he purchased a piece of land for $8,000. During the year, he leased the land to Sheila and received $3,000 in cash. He paid $
> From the following transactions, prepare a statement of cash flows for Emory Inc. in the proper form. The company began the year with a cash balance of $25,000. Describe and evaluate the company*s cash management activities during the year. 1. Borrowed $
> From the following transactions, prepare a statement of cash flows for Lana and Sons in the proper form. The company began the year with a cash balance of $13,000. Describe and evaluate the company’s cash management activities during the year. 1. The sha
> Southwest Airlines is a major airline. The following information was taken from its 2019 annual report. Compute the missing amounts in the following table. Describe and evaluate the company’s cash management activities in each of the th
> Listed below are eight transactions. In each case, identify whether the transaction is an example of financing, investing, or operating activities and which of the financial statements it would affect. 1. Common stock is issued for $500,000 in cash. 2. T
> Selected financial information appearing in the SEC Form 10-K for Exxon, the huge oil company, is reported below (dollars in millions). INSTRUCTIONS: Assume that company management expects sales growth during 2020 to be the same as from 2018 to 2019; pro
> Selected financial information appearing in the SEC Form 10-K for Delta Airlines is reported below (dollars in millions). INSTRUCTIONS: Assume that company management expects sales growth during 2020 to be the same as from 2018 to 2019; profit margin (i
> Target Corporation's 2019 financial statements included the following items (dollars in millions): a. Assuming that accounts payable refers only to inventory suppliers, compute the cash payments made by Target during 2019 to inventory suppliers. b. Revie
> Selected financial information appearing in the SEC Form 10-K for Deere, Inc., is reported below (dollars in millions). INSTRUCTIONS: Assume that company management expects sales growth during 2020 to be the same as from 2018 to 2019; profit margin (i.e.
> Review the Amazon financial statements contained in IDS.12 and, based on the following assumptions, prepare a simplified 2020 income statement and balance sheet. • Sales growth in 2020 is 20 percent. • Expense to sales ratio is 90 percent. • Total assets
> Selected financial information appearing in the SEC Form 10-K for Johnson & Johnson is reported below (dollars in millions). INSTRUCTIONS: Assume that company management expects sales growth of 8 percent during 2020, and during 2020 expects stable re
> Barnhiser Goods needs $100,000 to finance a project. It is negotiating a loan, and the bank has offered several different payment schedules. Compute the effective interest rate on each schedule, and identify the schedule with the lowest effective interes
