Question: Handi Mart, a retail store, has an

> What is the formula for the payout ratio? What does it indicate?

> Anglo Corporation has a current ratio of 1.1. Jon has always been told that a corporation’s current ratio should exceed 2.0. The company maintains that its ratio is low because it has a minimal amount of inventory on hand so as to reduce operating costs.

> Woode Corporation issued $400,000, 7%, 20-year bonds on January 1, 2017, for $360,727. This price resulted in an effective-interest rate of 8% on the bonds. Interest is payable annually on January 1. Woode uses the effective-interest method to amortize b

> The management of Milque Corp. is considering the effects of various inventory- costing methods on its financial statements and its income tax expense. Assuming that the price the company pays for inventory is increasing, which method will: (a) provide t

> A Timmins Company of Emporia, Kansas, spreads herbicides and applies liquid fertilizer for local farmers. On May 31, 2017, the company’s Cash account per its general ledger showed a balance of $6,738.90. The bank statement from Emporia

> In the direct method, why is depreciation expense not reported in the cash flows from operating activities section?

> Hank Mays needs a few new trucks for his business. He is considering buying the trucks but is concerned that the additional debt he will need to incur will make his liquidity and solvency ratios look bad. What options does he have other than purchasing t

> Keanu Inc. has net income of $200,000, average shares of common stock outstanding of 40,000, and preferred dividends for the period of $20,000. What is Keanu’s earnings per share of common stock? Fred Tyme, the president of Keanu, believes that the compu

> Thom Inc.’s common stock has a par value of $1 and a current market price of $15. Explain why these amounts are different.

> Motley Company issued $300,000, 8%, 15-year bonds on December 31, 2016, for $288,000. Interest is payable annually on December 31. Motley uses the straight-line method to amortize bond premium or discount. Instructions Prepare the journal entries to reco

> (a) What is the purpose of a retained earnings restriction? (b) Identify the possible causes of retained earnings restrictions.

> The management of Ingolls Corporation is concerned because survey data suggest that many potential customers do not buy vehicles due to quality concerns. It is considering taking the bold step of increasing the length of its warranty from the industry st

> Which two ratios do you think should be of greatest interest in each of the following cases? (a) A pension fund considering the purchase of 20-year bonds. (b) A bank contemplating a short-term loan. (c) A common stockholder.

> Sehr Company issued $500,000, 6%, 30-year bonds on January 1, 2017, at 103. Interest is payable annually on January 1. Sehr uses straight-line amortization for bond premium or discount. Instructions Prepare the journal entries to record the following eve

> Ernie Sams says that liquidity and solvency are the same thing. Is he correct? If not, how do they differ?

> At Martinez Company, checks are not pre numbered because both the purchasing agent and the treasurer are authorized to issue checks. Each signer has access to unissued checks kept in an unlocked file cabinet. The purchasing agent pays all bills pertainin

> What was the total cost of Apple’s treasury stock at September 27, 2014? What was the amount of the 2014 cash dividend? What was the size of the 2014 stock split?

> Give the formulas under the direct method for computing (a) cash receipts from customers and (b) cash payments to suppliers.

> The return on assets for Ayala Corporation is 7.6%. During the same year, Ayala’s return on common stockholders’ equity is 12.8%. What is the explanation for the difference in the two rates?

> Jenseng Inc. issues a $800,000, 10%, 10-year mortgage note on December 31, 2017, to obtain financing for a new building. The terms provide for annual installment payments of $130,196. Prepare the entry to record the mortgage loan on December 31, 2017, an

> The board of directors is considering a stock split or a stock dividend. They understand that total stockholders’ equity will remain the same under either action. However, they are not sure of the different effects of the two actions on other aspects of

> (a) In general, what are the requirements for the financial statement presentation of long-term liabilities? (b) What ratios may be computed to evaluate a company’s liquidity and solvency?

> Describe the direct method for determining net cash provided by operating activities.

> Holding all other factors constant, indicate whether each of the following changes generally signals good or bad news about a company. (a) Increase in profit margin. (b) Decrease in inventory turnover. (c) Increase in current ratio. (d) Decrease in earni

> A large retailer was sued nearly 5,000 times in a recent year—about once every 2 hours every day of the year. It has been sued for everything imaginable—ranging from falls on icy parking lots to injuries sustained in shoppers’ stampedes to a murder with

> The international accounting firm Ernst & Young performed a global survey on fraud. The results of that survey are summarized in a report titled “Driving Ethical Growth—New Markets, New Challenges” (Ernst & Young, 13th Global Fraud Survey). You can find

> Presented below is the partial bond discount amortization schedule for Rohr Corp., which uses the effective-interest method of amortization. Instructions (a) Prepare the journal entry to record the payment of interest and the discount amortization at th

> Comparative financial statement data for Loeb Corporation and Bowsh Corporation, two competitors, appear below. All balance sheet data are as of December 31, 2017. Instructions (a) Comment on the relative profitability of the companies by computing the n

> Based on its statement of cash flows, in what stage of the product life cycle is Apple?

> What is the formula for computing the payout ratio? Do you expect this ratio to be high or low for a growth company?

> Penny Lennon, the chief financial officer of Johnson Inc., is considering the options available to her for financing the company’s new plant. Short-term interest rates right now are 6%, and long-term rates are 8%. The company’s current ratio is 2.2:1. If

> Jayne Corporation has 10,000 shares of $15 par value common stock outstanding when it announces a 3-for-1 split. Before the split, the stock had a market price of $120 per share. After the split, how many shares of stock will be outstanding, and what wil

> Underwood Boutique reported the following financial data for 2017 and 2016. Instructions (a) Calculate the current ratio for Underwood Boutique for 2017 and 2016. (b) Suppose that at the end of 2017, Underwood Boutique used $1.5 million cash to pay off

> Harvard Inc. issues $4 million, 5-year, 8% bonds at 102, with interest payable on January 1. The straight-line method is used to amortize bond premium. (a) Prepare the journal entry to record the sale of these bonds on January 1, 2017. (b) Prepare the jo

> Which accounts are debited and which are credited if a bond issue originally sold at a premium is redeemed before maturity at 97 immediately following the payment of interest?

> Doris Angel asks, “Since stock dividends don’t change anything, why declare them?” What is your answer to Doris?

> Distinguish between ordinary repairs and capital expenditures during an asset’s useful life.

> At year-end, the price-earnings ratio of General Motors was 11.3, and the price-earnings ratio of Microsoft was 28.14. Which company did the stock market favor? Explain.

> (a) What are the phases of the corporate life cycle? (b) What effect does each phase have on the amounts reported in a statement of cash flows?

> The following information is available for Lessila Bowling Alley at December 31, 2017 Prepare a classified statement of financial position. Assume that $13,900 of the notes payable will be paid in 2018. Share Capital Retained Earnings (beginning) Bui

> Alpine Company issues $2 million, 10-year, 7% bonds at 99, with interest payable on December 31. The straight-line method is used to amortize bond discount. (a) Prepare the journal entry to record the sale of these bonds on January 1, 2017. (b) Prepare t

> If the Bonds Payable account has a balance of $700,000 and the Discount on Bonds Payable account has a balance of $36,000, what is the carrying value of the bonds?

> During 2017, Slivowitz Company exchanged $1,700,000 of its common stock for land. Indicate how the transaction would be reported on a statement of cash flows, if at all.

> Contrast the effects of a cash dividend and a stock dividend on a corporation’s balance sheet.

> Which ratios should be used to help answer each of these questions? (a) How efficient is a company in using its assets to produce sales? (b) How near to sale is the inventory on hand? (c) How many dollars of net income were earned for each dollar investe

> Suppose McDonald’s 2017 financial statements contain the following selected data (in millions). Instructions (a) Compute the following values and provide a brief interpretation of each. (1) Working capital. (2) Current ratio. (3) Debt

> On January 1, 2017, Lenne Corporation had $1,200,000 of common stock outstanding that was issued at par and retained earnings of $750,000. The company issued 30,000 shares of common stock at par on July 1 and earned net income of $400,000 for the year. I

> Alysha Monet has prepared the following list of statements about depreciation. 1. Depreciation is a process of asset valuation, not cost allocation. 2. Depreciation provides for the proper matching of expenses with revenues. 3. The book value of a plant

> Suppose the Canadian National Railway Company’s (CN) total assets in a recent year were $24,004 million and its total liabilities were $14,180 million. That year, CN reported operating lease commitments for its locomotives, freight cars, and equipment to

> Three dates associated with Petrie Company’s cash dividend are May 1, May 15, and May 31. Discuss the significance of each date and give the entry at each date.

> Suppose the following information (in thousands of dollars) is available for H. J. Heinz Company—famous for ketchup and other fine food products—for the year ended April 30, 2017. Instructions Prepare the assets sect

> Why is the statement of cash flows useful?

> Sanchez, Inc. reports the following liabilities (in thousands) on its December 31, 2017, balance sheet and notes to the financial statements. Instructions (a) Identify which of the above liabilities are likely current and which are likely long-term. Lis

> Cabo Company has $1,000,000 in assets and $1,000,000 in stockholders’ equity, with 40,000 shares outstanding the entire year. It has a return on assets of 10%. During 2016, it had net income of $100,000. On January 1, 2017, it issued $400,000 in debt at

> The following information is taken from the 2017 general ledger of Preminger company. Instructions In each case, compute the amount that should be reported in the operating activities section of the statement of cash flows under the direct method. R

> Selected data taken from a recent year’s financial statements of trading card company Topps Company, Inc. are as follows (in millions). Net sales $326.7 Current liabilities, beginning of year 41.1 Current liabilities, end of year

> Suppose the 2017 adidas financial statements contain the following selected data (in millions). Compute the following values and provide a brief interpretation of each. (a) Working capital. (b) Current ratio (c) Debt to assets ratio. (d) Times interest

> Match the statement with the term most directly associated with it. Goodwill Amortization Intangible assets Franchise Research and development costs 1. _______ Rights, privileges, and competitive advantages that result from the ownership of long-l

> What three conditions must be met before a cash dividend is paid?

> What is the difference between the current ratio and working capital?

> Why and how is depreciation expense reported in a statement of cash flows prepared using the indirect method?

> Lee and Jay are discussing how the market price of a bond is determined. Lee believes that the market price of a bond is solely a function of the amount of the principal payment at the end of the term of a bond. Is he right? Discuss.

> Amazon.com, Inc.’s financial statements are presented in Appendix D. Financial statements of Wal-Mart Stores, Inc. are presented in Appendix E. Instructions (a) For each company, calculate the following values for 2014. (1) Working capital. (2) Current r

> The situations presented here are independent of each other. Instructions For each situation, prepare the appropriate journal entry for the redemption of the bonds. (a) Mikhail Corporation redeemed $140,000 face value, 9% bonds on April 30, 2017, at 101.

> The following information is available for Balboa Corp. for 2017. Cash used to purchase treasury stock $ 48,100 Cash dividends paid 21,800 Cash paid for interest 22,400 Net income 464,300 Sales revenue 802,000 Cash paid

> Baja Airlines is considering these two alternatives for financing the purchase of a fleet of airplanes: 1. Issue 50,000 shares of common stock at $40 per share. (Cash dividends have not been paid nor is the payment of any contemplated.) 2. Issue 12%, 10-

> The December 10, 2011, edition of The Economist contains an article entitled “Helping the Poor to Save: Small Wonder.” This article discusses how many of the world’s poorest people benefit from borrowing small amounts of money. Instructions Read the arti

> Hollie Company has stockholders’ equity of $400,000 and net income of $72,000. It has a payout ratio of 18% and a return on assets of 20%. How much did Hollie pay in cash dividends, and what were its average total assets?

> Here is information related to Morgane Company for 2017. Total credit sales $1,500,000 Accounts receivable at December 31 840,000 Bad debts written off 37,000 Instructions (a) What amount of bad debt expense will Morgane Company

> Refer to the financial statements of Apple Inc. in Appendix A. Instructions (a) Calculate the accounts receivable turnover and average collection period for 2014. (Assume all sales were credit sales.) (b) Did Apple have any potentially signifi cant credi

> Presented here are liability items for O’Brian Inc. at December 31, 2017. Prepare the liabilities section of O’Brian’s balance sheet. $ 7,800 Accounts payable Notes payable (due May 1, 2018) Bonds

> Assume that Acorn Inc. sold bonds with a face value of $100,000 for $104,000. Was the market interest rate equal to, less than, or greater than the bonds’ contractual interest rate? Explain.

> Identify five items that are adjustments to convert net income to net cash provided by operating activities under the indirect method.

> Indicate how each of these accounts should be classified in the stockholders’ equity section of the balance sheet. (a) Common Stock. (b) Paid-in Capital in Excess of Par Value. (c) Retained Earnings. (d) Treasury Stock. (e) Paid-in Capital in Excess of S

> What does each type of ratio measure? (a) Liquidity ratios. (b) Solvency ratios. (c) Profitability ratios.

> The internal control procedures in Dayton Company result in the following provisions. Identify the principles of internal control that are being followed in each case. (a) Employees who have physical custody of assets do not have access to the accounting

> Umatilla Bank and Trust is considering giving Pohl Company a loan. Before doing so, it decides that further discussions with Pohl’s accountant may be desirable. One area of particular concern is the Inventory account, which has a year-end balance of $275

> Hetty Grey has just approached a venture capitalist for financing for her new business venture, the development of a local ski hill. On July 1, 2016, Hetty was loaned $150,000 at an annual interest rate of 7%. The loan is repayable over 5 years in annual

> Kojak Corporation decided to issue common stock and used the $300,000 proceeds to redeem all of its outstanding bonds on January 1, 2017. The following information is available for the company for 2017 and 2016. Instructions (a) Compute the return on co

> The condensed financial statements of Ness Company for the years 2016 and 2017 are presented below. Compute the following ratios for 2017 and 2016. (a) Current ratio. (b) Inventory turnover. (Inventory on December 31, 2015, was $340.) (c) Profit margin.

> The ledger of Macarty Company at the end of the current year shows Accounts Receivable $78,000, Credit Sales $810,000, and Sales Returns and Allowances $40,000. Instructions (a) If Macarty uses the direct write-off method to account for uncollectible acc

> The 2017 accounting records of Megan Transport reveal these transactions and events. Instructions Prepare the cash flows from operating activities section using the direct method. $ 10,000 Payment of salaries and wages 48,000 Depreciation expense 18

> If your school has a subscription to the FASB Codification, go to http://aaahq.org/asclogin.cfm to log in and prepare responses to the following. (a) What is the definition of current liabilities? (b) What is the definition of long-term obligations? (c)

> Staples, Inc. is one of the largest suppliers of office products in the United States. Suppose it had net income of $738.7 million and sales of $24,275.5 million in 2017. Its total assets were $13,073.1 million at the beginning of the year and $13,717.3

> Stossel Corporation has 200,000 shares of $10 par value common stock out-standing. It declares a 12% stock dividend on December 1 when the market price per share is $17. The dividend shares are issued on December 31. Prepare the entries for the declarati

> The following data were taken from the income statements of Mydorf Company. Compute for each year (a) the inventory turnover and (b) days in inventory. What conclusions concerning the management of the inventory can be drawn from these data? 2017 20

> Describe the two major obligations incurred by a company when bonds are issued.

> Identify the events that result in credits and debits to retained earnings.

> The following characteristics, assumptions, principles, and constraint guide the FASB when it creates accounting standards. Relevance Periodicity assumption Faithful representation Going concern assumption Comparability Historical cost principle Consiste

> The president of Murquery Company is puzzled. During the last year, the company experienced a net loss of $800,000, yet its cash increased $300,000 during the same period of time. Explain to the president how this could occur.

> Vern Thoms is puzzled. His company had a profit margin of 10% in 2017. He feels that this is an indication that the company is doing well. Tina Amos, his accountant, says that more information is needed to determine the company’s financial well-being. Wh

> The financial statements of Columbia Sportswear Company are presented in Appendix B. Financial statements for VF Corporation are presented in Appendix C. Instructions (a) Based on the information in the financial statements, compute these 2014 values for

> Laverne purchased a new piece of equipment to be used in its new facility. The $370,000 piece of equipment was purchased with a $50,000 down payment and with cash received through the issuance of a $320,000, 8%, 5-year mortgage payable issued on January

> You are provided with the following transactions that took place during the year. Instructions For each transaction listed, indicate whether it will increase (I), decrease (D), or have no effect (NE) on free cash flow. Free Cash Transactions Flow ($

> Assume that the following are independent situations recently reported in the Wall Street Journal. 1. General Electric (GE) 7% bonds, maturing January 28, 2018, were issued at 111.12. 2. Boeing 7% bonds, maturing September 24, 2032, were issued at 99.08.

> Panza Corporation experienced a fi re on December 31, 2017, in which its financial records were partially destroyed. It has been able to salvage some of the records and has ascertained the following balances. Additional information: 1. The inventory tur

> Suppose the 2017 income statement for McDonald’s Corporation shows cost of goods sold $5,178.0 million and operating expenses (including depreciation expense of $1,216.2 million) $10,725.7 million. The comparative balance sheets for the year show that in

> Suppose the following financial information is available for Walgreen Company. Instructions Calculate the payout ratio and return on common stockholders’ equity for 2017 and 2016. Comment on your findings. (in millions) 2017 2016 A

> The March 6, 2012, edition of the Wall Street Journal Online contains an article by David Kesmodel entitled “Air War: ‘Winglet’ Versus ‘Sharklet’.” This article demonstrates how a company focused on green technology has also been profitable. Instructions

> For most U.S. families, medical costs are substantial and rising. But will medical costs be your most substantial expense over your lifetime? Not likely. Will it be housing or food? Again, not likely. The answer: Taxes are likely to be your biggest expen