How does depreciation expense differ from other operating expenses?
> Discuss the relationship among the income statement, the statement of retained earnings, and the balance sheet.
> Explain the need for subsidiary ledgers in accounting for merchandising activities.
> Discuss the relationship among the income statement, the statement of retained earnings, and the balance sheet.
> Some people think that a company’s retained earnings represent cash reserved for the payment of dividends. Are they correct? Explain.
> A portion of the stockholders’ equity section from the balance sheet of Wall and Corporation appears as follows. Notice that the company has two classes of preferred stock with different features, in addition to common stock. Assume th
> Explain briefly the items generally included in a company’s annual report. (You may use the financial statements appearing in Appendix A to support your answer.)v
> List two items often encountered in reconciling a bank statement that may cause cash per the bank statement to be larger than the balance of cash shown in the depositor’s accounting records.
> A statement of stockholders’ equity sometimes is described as an “expanded” statement of retained earnings. Why?
> Section 404 of the Sarbanes-Oxley Act (SOX) is designed to nip accounting problems in the bud, before they can blossom into fraud, by focusing on internal controls. Many companies, in complying with Section 404, have discovered—to their surprise—that rev
> In the following list, assume each transaction is independent of the others. Each of these transactions occurs in a single division of Hope stat Incorporated, a multidivision company. Each transaction may impact capital turnover, ROI, and/or residual inc
> Why are cash balances in excess of those needed to finance business operations viewed as relatively nonproductive assets? Suggest several ways in which these excess cash balances may be utilized effectively.
> What are lines of credit? From the viewpoint of a shortterm creditor, why do lines of credit increase a company’s liquidity? How are the unused portions of these lines presented in financial statements?
> What are cash equivalents? Provide two examples. Why are these items often combined with cash for the purpose of balance sheet presentation?
> Different categories of financial assets are valued differently in the balance sheet. These different valuation methods have one common goal. Explain
> What is the formula for computing interest on a note receivable, and what does each term mean?
> When Resistor Systems, Inc., was formed, the company was authorized to issue 5,000 shares of $100 par value, 8 percent cumulative preferred stock, and 100,000 shares of $2 stated value common stock. Half of the preferred stock was issued at a price of $1
> Explain how each of the following is presented in a multiple-step income statement. a. Sale of marketable securities at a loss. b. Adjusting entry to create (or increase) the allowance for doubtful accounts. c. Entry to write off an uncollectible acco
> What are the advantages to a retailer of making credit sales only to customers who use nationally recognized credit cards?
> Must companies use the same method of accounting for uncollectible accounts receivable in their financial statements and in their income tax returns? Explain
> In making the annual adjusting entry for uncollectible accounts, a company may utilize a balance sheet approach to make the estimate, or it may use an income statement approach. Explain these two alternative approaches.
> Explain the relationship between the matching principle and the need to estimate uncollectible accounts receivable.
> Hinkley Corporation recently filed the following information with the SEC regarding its executive compensation. Base Salaries: We provide competitive base salaries that allow us to attract and retain a high performing leadership team. Annual Bonus: All e
> Why is it important for management to understand cost volume-profit relationships?
> Briefly describe the flow of cash among receivables, cash, and marketable securities.
> How does a balance arise in the Purchase Discounts Lost account? Why would management be interested in monitoring the activity in this account?
> Explain the distinguishing characteristics of (a) a general journal and (b) a special journal.
> Listed are 12 technical accounting terms discussed in this chapter. Each of the following statements may (or may not) describe one of these technical terms. For each statement, indicate the term described, or answer “Noneâ€&
> Briefly contrast the accounting procedures in perpetual and periodic inventory systems.
> Briefly contrast the accounting procedures in perpetual and periodic inventory systems.
> Define the term inventory shrinkage. How is the amount of inventory shrinkage determined in a business using a perpetual inventory system, and how is this shrinkage recorded in the accounting records?
> During the current year, Green Bay Company earned a gross profit of $350,000, whereas New England Company earned a gross profit of only $280,000. Both companies had net sales of $900,000. Does this mean that Green Bay is more profitable than New England?
> What is meant by the statement that revenue has been recognized?
> Under a perpetual inventory system, a company should know the quantity and price of its inventory at any time. Given this, why do companies that use a perpetual inventory system still take a physical count of their merchandise inventory at least once a y
> Joyce Biginskor manages the assembly department at Valance Autoparts, a parts supplier to large auto companies. Valance has recently adopted a balanced scorecard for the entire company. As a result, the plant manager for each production facility has a se
> Shown as follows is selected information from the financial statements of Dickson, Inc., a retail furniture store. Instructions: a. Explain how the interest expense shown in the income statement could be $84,000, when the interest payment appearing in t
> Define the term gross profit margin. Explain several ways in which management might improve a company’s overall profit margin.
> In discussing stock dividends and stock splits in an investments class you are taking, one of the students says, “The definition of stock splits and stock dividends is exactly the same distributions of a company’s stock to existing owners without payment
> The financial statements of Home Depot, Inc., appear in Appendix A of this text. These statements contain information describing the details of the company’s stockholders’ equity. a. What is the par value of the company’s common stock? Did the common st
> A seller generally records sales at the full invoice price, but the buyer often records purchases at net cost. Explain the logic of the buyer and seller recording the transaction at different amounts.
> Tarec is a retail store in a state that imposes a 6 percent sales tax. Would you expect to find sales tax expense and sales tax payable in TireCo’s financial statements? Explain.
> Outback Sporting Goods purchases merchandise on terms of 4/10, n/60. The company has a line of credit that enables it to borrow money as needed from Northern Bank at an annual interest rate of 13 percent. Should Outback pay its suppliers within the 10-da
> European Imports pays substantial freight charges to obtain inbound shipments of purchased merchandise. Should these freight charges be added to the company’s Delivery Expense account? Explain.
> The income statement of a merchandising company includes a major type of cost that does not appear in the income statement of a service-type business. Identify this cost and explain what it represents.
> Under which type of inventory system is an inventory subsidiary ledger maintained?
> Explain several purposes that may be served by preparing a worksheet (or using computer software that achieves the goals of a worksheet).*
> Explain the significance of measuring a company’s return on equity.
> Bob Banker is the manager of one location of the Fastwhere Inc. chain, which is a delivery service. Banker’s location is currently earning an ROI of 14 percent on existing average capital of $750,000. The minimum required return for Fas
> Explain the need for closing entries and describe the process by which temporary owners’ equity accounts are closed at year-end
> Twin Towns, Inc., was authorized to issue 300,000 shares of common stock and originally issued 100,000 shares of $10 par value stock at $18 per share. Subsequently, 25,000 shares were repurchased at $20, of which 10,000 were subsequently resold at $23. A
> Explain why speeding up the collection of accounts receivable provides only a one-time increase in cash receipts.
> Explain the accounting principle of adequate disclosure.
> What are interim financial statements? Do accounts that appear in a company’s interim balance sheet require any special computations to be reported correctly? Explain.
> Can a company be profitable but not liquid? Explain.
> Which accounts appear in a company’s after-closing trial balance? How do these accounts differ from those reported in an adjusted trial balance?
> A particular investment proposal has a payback period that exceeds the investment’s expected life. The investment has no salvage value. Will this proposal’s net present value be positive or negative? Explain your answer.
> What factors might a company consider in establishing a minimum required return on an investment proposal?
> The present value of an investment depends on the timing of its future cash flows. Explain what this statement means by giving a specific example of two investments that have significant timing differences and discussing the implications of those timing
> Tootsie Roll Industries has two business segments, one for operations in the United States and one for operations in Mexico and Canada. The following information (in thousands) comes from a recent annual report. Find the ROI for each segment for each yea
> Minor Company is authorized to sell 1,200,000 shares of $10 par value common stock and 60,000 shares of $100 par value 6 percent preferred stock. As of the end of the current year, the company has actually sold 550,000 shares of common stock at $12 per s
> What nonfinancial considerations should be taken into account regarding a proposal to install a fire sprinkler system in a finished goods warehouse?
> Discounting cash flows takes into consideration one characteristic of the earnings stream that is ignored in the computation of return on average investment. What is this characteristic and why is it important?
> Discounting a future cash flow at 15 percent results in a lower present value than does discounting the same cash flow at 10 percent. Explain why.
> What is a liquidating dividend, and how does it relate to a regular (no liquidating) dividend?
> What is the major shortcoming of using the payback period as the only criterion in making capital budgeting decisions?
> Identify some conditions where upper management might allow some divisions to have a lower required rate of return.
> Why is it important to consider income tax consequences when deciding whether to replace an asset?
> What are some types of capital investment projects in which nonfinancial factors may outweigh financial factors?
> What steps can a firm take to ensure that employee estimates of the costs, revenue, and cash flows from a proposed capital investment are not overly optimistic or pessimistic?
> Depreciation expense does not require payment in cash. However, it is an important consideration in the discounting of an investment’s future cash flows. Explain why.
> Ashton Company was experiencing financial difficulty late in the current year. The company’s income was sluggish, and the market price of its common stock was tumbling. On December 21, the company began to buy back shares of its own stock in an attempt t
> The manager of the Fleet division of Potlatch Automotive is evaluated on her division’s return on investment and residual income. The company requires that all divisions generate a minimum return on invested assets of 15 percent. Consistent failure to ac
> What can be said about an investment proposal that has a net present value of zero?
> Is an investment’s average estimated net income used to compute its return on average investment the same thing as the incremental annual cash flows used to compute its net present value? Explain your answer.
> What is capital budgeting? Why are capital budgeting decisions crucial to the long-run financial health of a business enterprise?
> How would you expect the components of return on investment to be different for a mostly Internet-based retailer compared to a more traditional bricks-and-mortar retailer (e.g., Amazon.com versus Barnes & Noble)?
> Explain the concept of peak pricing and provide an example from your own experience.
> In designing a compensation plan for the manager of the international operations of Tootsie Roll Industries (which, in addition to the United States, include Mexico and Canada), what trade-offs might the company’s board of directors take into considerati
> Why is residual income suggested as an improvement over ROI for business measurement?
> What are some problems that companies have encountered in using the balanced scorecard?
> Assume you are the manager of the finished goods warehouse of a computer manufacturer. Which warehouserelated business measures might help the company achieve its balanced scorecard goals?
> Green Thumb operates a chain of lawn fertilizer stores. Although the fertilizer is sold under the Green Thumb label, it is purchased from an independent manufacturer. Sue Smith, president of Green Thumb, is studying the advisability of opening another st
> Distinguish between the four lenses of the balanced scorecard and provide an example of a business measure for each category for a family owned grocery store
> Consider the Empire Hotel discussed in Problem 25.1A. The manager of the restaurants department complains that sales and resulting earnings for the restaurants are not higher due to the poor reputation of the hotel rooms department. Because the hotel roo
> What activities would make up the learning and growth component of the balanced scorecard for a large public accounting firm?
> Suppose you are interested in opening a new restaurant in your area. What specific activities would you identify as goals for your restaurant?
> Identify the costs and benefits of a competitive incentive plan in which only one individual out of a group receives the bonus if he or she outperforms the others in the group.
> Identify the costs and benefits of a cooperative incentive plan in which a team of individuals equally shares a bonus pool if the team achieves a predetermined goal.
> Assume sales remain constant from year 1 to year 2 and return on sales (ROS) increases from year 1 to year 2. Identify two reasons why the return on sales ratio might increase from year 1 to year 2
> If a company’s total stockholders’ equity is unchanged by the distribution of a stock dividend, how is it possible for a stockholder who received shares in the distribution of the dividend to benefit?
> For which perspective of the balanced scorecard would the output from a standard cost system (e.g., variances) provide useful performance measurement information? Explain.
> Exhibit 25–9 identifies balanced scorecard performance measures. Review this exhibit and identify two measures from the customer perspective category that in the short run might be in conflict with some of the measures listed in the fin
> Ashton Company was experiencing financial difficulty late in the current year. The company’s income was sluggish, and the market price of its common stock was tumbling. On December 21, the company began to buy back shares of its own stock in an attempt t
> Custodian Commandos, Inc., provides janitorial services to public school systems. The business adjusts its accounts monthly, but closes them only at year-end. Its fiscal year ends on December 31. A summary of the company’s total revenue
> At the end of the year, the following information was obtained from the accounting records of Harrison Electronics, Inc. Instructions: a. From the information given, compute the following. 1. Inventory turnover. 2. Accounts receivable turnover. 3. Total
> Early in 2019, Feller Corporation was formed with authorization to issue 50,000 shares of $1 par value common stock. All shares were issued at a price of $8 per share. The corporation reported net income of $95,000 in 2019, $27,500 in 2020, and $75,700 i
> Techno Corporation is the producer of popular business software. Recently, an investment service published the following per-share amounts relating to the company’s only class of stock. Instructions: a. Without reference to dollar amo
> Parsons, Inc., is a publicly owned company. The following information is excerpted from a recent balance sheet. Dollar amounts (except for per-share amounts) are stated in thousands. Instructions: From this information, answer the following questions.
> Fowler, Inc., declared a 4 percent stock dividend on its 750,000 shares of common stock. The $10 par value common stock was originally sold for $14 and was selling at $17 at the time the stock dividend was declared. Prepare the general journal entries to
> The year-end balance sheet of Ft. Smith Products includes the following stockholders’ equity section (with certain details omitted). Instructions: From this information, compute answers to the following questions. a. How many shares
> Early in the year Bill Shares and several friends organized a corporation called Shares Communications, Inc. The corporation was authorized to issue 50,000 shares of $100 par value, 10 percent cumulative preferred stock and 400,000 shares of $2 par value
