Jamison Cruise Lines, Inc., reported the following income statement for the year ended December 31, 2012: _____________________________________Millions Operating revenues ............................................................... $95,500 Operating expenses.................................................................. 84,100 Operating income...................................................................... 11,400 Other revenue (expense), net .................................................... 1,000 Income from continuing operations........................................ 12,400 Discontinued operations, net of tax............................................ 1,100 Net income.............................................................................. $13,500 Requirements 1. Were Jamison’s discontinued operations more like an expense or revenue? How can you tell? 2. Should the discontinued operations of Jamison be included in or excluded from net income? State your reason. 3. Suppose you are working as a financial analyst and your job is to predict Jamison’s net income for 2013 and beyond. Which item from the income statement will you use for your prediction? Identify its amount. Why will you use this item?
> The Bradley Corporation produces a product with the following costs as of July 1, 2011: Beginning inventory at these costs on July 1 was 3,000 units. From July 1 to December 1, 2011, Bradley produced 12,000 units. These units had a material cost of $3,
> In the management of cash and marketable securities, why should the primary concern be for safety and liquidity rather than maximization of profit?
> What does the EOQ formula tell us? What assumption is made about the usage rate for inventory?
> Explain why the bad debt percentage or any other similar credit-control percentage is not the ultimate measure of success in the management of accounts receivable. What is the key consideration?
> Why are Treasury bills a favorite place for financial managers to invest excess cash?
> Explain the similarities and differences of lockbox systems and regional collection offices.
> Why might a firm keep a safety stock? What effect is it likely to have on carrying cost of inventory?
> Orbital Communications has operating plants in over 100 countries. It also keeps funds for transactions purposes in many foreign countries. Assume in 2010 it held 100,000 kronas in Norway worth $35,000. The funds drew 12 percent interest, and the krona i
> If Dome offered a 2 percent discount for payment in 10 days and every customer took advantage of the new terms, what would the new average receivables balance be? Use the full sales of $144,000 for your calculation of receivables.
> Assume that the new trade terms of 2/10, net 30 will increase sales by 15 percent because the discount makes the Dome’s price competitive. If Dome earns 20 percent on sales before discounts, should it offer the discount? (Consider the same variables as y
> If Dome reduces its bank loans, which cost 10 percent, by the cash generated from its reduced receivables, what will be the net gain or loss to the firm (don’t forget the 2 percent)? Should it offer the discount?
> At the end of January, Mineral Labs had an inventory of 725 units, which cost $10 per unit to produce. During February the company produced 650 units at a cost of $14 per unit. If the firm sold 1,000 units in February, what was the cost of goods sold? a.
> Dome Metals has credit sales of $144,000 yearly with credit terms of net 30 days, which is also the average collection period. Dome does not offer a discount for early payment, so its customers take the full 30 days to pay. What is the average receivable
> If inventory turnover had only been 4 times: a. What would be the new value for inventory investment? b. What would be the return on investment? You need to recompute the total investment and the total costs of the campaign to work toward computing inc
> Global Services is considering a promotional campaign that will increase annual credit sales by $400,000. The company will require investments in accounts receivable, inventory, and plant and equipment. The turnover for each is as follows: All $400,000
> Reconsider problem 19C. Assume the average collection period is 120 days. All other factors are the same (including 12 percent uncollectibles). Should credit be extended? Data from Problem 19C: Comiskey Fence Co. is evaluating the extension of credit to
> Comiskey Fence Co. is evaluating the extension of credit to a new group of customers. Although these customers will provide $180,000 in additional credit sales, 12 percent are likely to be uncollectible. The company will also incur $15,700 in additional
> Henderson Office Supply is considering a more liberal credit policy to increase sales, but expects that 8 percent of the new accounts will be uncollectible. Collection costs are 5 percent of new sales, production and selling costs are 78 percent; and acc
> Johnson Electronics is considering extending trade credit to some customers previously considered poor risks. Sales would increase by $100,000 if credit is extended to these new customers. Of the new accounts receivable generated, 10 percent will prove t
> Wisconsin Snowmobile Corp. is considering a switch to level production. Cost efficiencies would occur under level production, and aftertax costs would decline by $30,000, but inventory would increase by $250,000. Wisconsin Snowmobile have to finance the
> Diagnostic Supplies has expected sales of 135,000 units per year, carrying costs of $3 per unit, and an ordering cost of $4 per order. a. What is the economic order quantity? b. What is the average inventory? What is the total carrying cost? c. Assum
> In the second year, Fisk Corporation finds that it can reduce ordering costs to $2 per order but that carrying costs will stay the same at $1.20. Also, volume remains at 75,000 units. a. Recompute a, b, c, and d in Problem 13 for the second year. b. Now
> At the end of January, Higgins Data Systems had an inventory of 600 units, which cost $16 per unit to produce. During February the company produced 850 units at a cost of $19 per unit. If the firm sold 1,100 units in February, what was its cost of goods
> Fisk Corporation is trying to improve its inventory control system and has installed an online computer at its retail stores. Fisk anticipates sales of 75,000 units per year, an ordering cost of $8 per order, and carrying costs of $1.20 per unit. a. Wh
> Midwest Tires has expected sales of 12,000 tires this year, an ordering cost of $6 per order, and carrying costs of $1.60 per tire. a. What is the economic ordering quantity? b. How many orders will be placed during the year? c. What will the average
> Route Canal Shipping Company has the following schedule for aging of accounts receivable: a. Fill in column (4) for each month. b. If the firm had $1,440,000 in credit sales over the four-month period, compute the average collection period. Average dail
> Mervyn’s Fine Fashions has an average collection period of 40 days. The accounts receivable balance is $80,000. What is the value of its credit sales?
> In Problem 8, if accounts receivable change to $140,000, while credit sales are $1,440,000, should we assume the firm has a more or a less lenient credit policy? Hint: Recompute the average collection period.
> Barney’s Antique Shop has annual credit sales of $1,080,000 and an average collection period of 40 days. Assume a 360-day year. What is the company’s average accounts receivable balance? Accounts receivable are equal to the average daily credit sales tim
> Eco-Friendly Products has annual credit sales of $900,000 and an average collection period of 30 days. Assume a 360-day year. What is the company’s average accounts receivable balance? Accounts receivable are equal to the average daily credit sales times
> Oral Roberts Dental Supplies has annual sales of $5,625,000. Eighty percent are on credit. The firm has $475,000 in accounts receivable. Compute the value of the average collection period.
> Sanders’ Prime Time Company has annual credit sales of $1,800,000 and accounts receivable of $210,000. Compute the value of the average collection period.
> Postal Express has outlets throughout the world. It also keeps funds for transactions purposes in many foreign countries. Assume in 2010 it held 200,000 reals in Brazil worth 130,000 dollars. It drew 10 percent interest, but the Brazilian real declined 2
> On December 31 of last year, Wolfson Corporation had in inventory 400 units of its product, which cost $21 per unit to produce. During January, the company produced 800 units at a cost of $24 per unit. Assuming that Wolfson Corporation sold 700 units in
> Neon Light Company of Kansas City ships lamps and lighting appliances throughout the country. Ms. Neon has determined that through the establishment of local collection centers around the country, she can speed up the collection of payments by one and on
> Beth’s Society Clothiers, Inc., has collection centers across the country to speed up collections. The company also makes payments from remote disbursement centers so the firm’s checks will take longer to clear the bank. Collection time has been reduced
> Logan Distributing Company of Atlanta sells fans and heaters to retail outlets through out the Southeast. Joe Logan, the president of the company, is thinking about changing the firm's credit policy to attract customers away from competitors. The present
> What does the term structure of interest rates indicate?
> Discuss the relative volatility of short- and long-term interest rates.
> What are three theories for describing the shape of the term structure of interest rates (the yield curve)? Briefly describe each theory. Liquidity premium theory, the market segmentation theory, and the expectations theory.
> A firm that uses short-term financing methods for a portion of permanent current assets is assuming more risk but expects higher returns than a firm with a normal financing plan. Explain.
> By using long-term financing to finance part of temporary current assts, a firm may have less risk but lower returns than a firm with a normal financing plan. Explain the significance of this statement.
> “The most appropriate financing pattern would be one in which asset buildup and length of financing terms is perfectly matched.” Discuss the difficulty involved in achieving this financing pattern.
> How is a cash budget used to help manage current assets?
> Delsing Plumbing Company has beginning inventory of 14,000 units, will sell 50,000 units for the month, and desires to reduce ending inventory to 40 percent of beginning inventory. How many units should Delsing produce?
> Mansfield Corporation had 2010 sales of $100 million. The balance sheet items that vary directly with sales and the profit margin are as follows: The dividend payout rate is 50 percent of earnings, and the balance in retained earnings at the end of 2010
> Use the Amazing Way data in Short Exercise S11-3. In addition, Amazing Way had unrealized gains of $1,100 on investments and a $2,400 foreign-currency translation adjustment (a gain) during 2012. Both amounts are net of tax. Start with Amazing Wayâ
> Return to the Amazing Way data in Short Exercise 11-3. Amazing Way had 10,000 shares of common stock outstanding during 2012. Amazing Way declared and paid preferred dividends of $6,000 during 2012. Report Amazing Way’s earnings per sha
> Apex Marine, Inc., had income before income tax of $117,000 and taxable income of $91,000 for 2012, the company’s first year of operations. The income tax rate is 30%. 1. Make the entry to record Apex Marine’s income taxes for 2012. 2. Show what Apex Mar
> Boat Belting sells goods for 900,000 Mexican pesos. The foreign-exchange rate for a peso is $0.094 on the date of sale. Boat Belting then collects cash on April 24 when the exchange rate for a peso is $0.099. Record Boat’s cash collection. Boat Belting b
> Suppose Cola Corp. sells soft drink syrup to a Russian company on September 12. Cola Corp. agrees to accept 200,000 Russian rubles. On the date of sale, the ruble is quoted at $0.34. Cola Corp. collects half the receivable on October 18 when the ruble is
> For fiscal year 2012, Mango Computer, Inc., reported net sales of $19,323 million, net income of $1,997 million, and no significant discontinued operations, extraordinary items, or accounting changes. Earnings per share was $2.20. At a capitalization rat
> Amazing Way, Inc., reported the following items, listed in no particular order at December 31, 2012 (in thousands): Income tax of 35% applies to all items. Prepare Amazing Way’s income statement for the year ended December 31, 2012. O
> Study the 2012 income statement of Original Imports, Inc., and answer these questions about the company: 1. How much gross profi t did Original earn on the sale of its products in 2012? How much was income from continuing operations? Net income? 2. At
> Research has shown that over 50% of financial statement frauds are committed by companies that improperly recognize revenue. What does this mean? Describe the most common ways companies improperly recognize revenue.
> Answer the following questions about the characteristics of a corporation’s stock: 1. Who are the real owners of a corporation? 2. What privileges do preferred stockholders have over common stockholders? 3. Which class of stockholders reaps greater benef
> On an indirect method statement of cash flows, an increase in accounts payable would be a. Added to net income in the operating activities section. b. Reported in the financing activities section. c. Deducted from net income in the operating activities s
> Amazon.com’s consolidated financial statements appear in Appendix A at the end of this book. 1. Refer to the Consolidated Balance Sheets and Note 7 (Stockholders’ Equity). Describe the classes of stock that Amazon.com, Inc., has authorized. How many shar
> This case is based on a real situation. George Campbell paid $50,000 for a franchise that entitled him to market Success Associates software programs in the countries of the European Union. Campbell intended to sell individual franchises for the major la
> Nate Smith and Darla Jones have written a computer program for a video game that may rival PlayStation and Xbox. They need additional capital to market the product, and they plan to incorporate their business. Smith and Jones are considering alternative
> Which of the following is a characteristic of a corporation? a. No income tax b. Mutual agency c. Limited liability of stockholders d. Both a and b
> Smiley Site, Inc., ended 2012 with 10 million shares of $1 par common stock issued and outstanding. Beginning additional paid-in capital was $9 million, and retained earnings totaled $44 million. â–¶ In April 2013, Smiley Site issued 9 mi
> Orbit Corporation reported the following stockholders’ equity data (all dollars in millions except par value per share): Orbit earned net income of $2,920 during 2012. For each account except Retained Earnings, one transaction explain
> Use the I-9 Networking Solutions data in Exercise 10-88 to show how the company reported cash flows from financing activities during 2012. In Exercise 10-88 I-9 Networking Solutions began operations on January 1, 2012, and immediately issued its stock,
> I-9 Networking Solutions began operations on January 1, 2012, and immediately issued its stock, receiving cash. I-9’s balance sheet at December 31, 2012, reported the following stockholders’ equity: Common stock, $1 pa
> The statement of cash flows of Cooper, Inc., reported the following for the year ended December 31, 2012: Cash flows from financing activities (amounts in millions) Cash dividends paid ............................................................... $(1,7
> Consider the authority structure in a corporation, as diagrammed in Exhibit 10-2. 1. What group holds the ultimate power in a corporation? 2. Who is the most powerful person in the corporation? What’s the abbreviation of this person&aci
> The following accounts and related balances of Dove Designers, Inc., as of December 31, 2012, are arranged in no particular order. Requirements 1. Prepare Dove’s classified balance sheet in the account format at December 31, 2012. 2.
> On an indirect method statement of cash flows, an increase in a prepaid insurance would be a. Deducted from net income. b. Added to increases in current assets. c. Added to net income. d. Included in payments to suppliers.
> Assume ABC Cupcakes of Montana, Inc., completed the following transactions during 2012, the company’s 10th year of operations: Feb 3 Issued 10,000 shares of common stock ($3.00 par) for cash of $280,000. Mar 19 Purchased 2,700 shares of the company’s own
> Madrid Jewelry Company reported the following summarized balance sheet at December 31, 2012: Assets Current assets............................................................................................. $ 34,500 Property and equipment, net….........
> Bentley Outdoor Furniture Company included the following stockholders’ equity on its year-end balance sheet at February 28, 2013: Stockholders’ Equity Preferred stock, 6.0% cumulative—par value $25 per share authorized 140,000 shares in each class Class
> Healthy Living Foods, Inc., is authorized to issue 4,250,000 shares of $1.00 par common stock. In its initial public offering during 2012, Healthy Living issued 390,000 shares of its $1.00 par common stock for $5.50 per share. Over the next year, Healthy
> Callman Corp. has the following stockholders’ equity information: Callman’s charter authorizes the company to issue 10,000 shares of 6% preferred stock with par value of $90 and 750,000 shares of no-par common stock. The company issued 2,000 shares of th
> The partners who own Ameen Canoes Co. wished to avoid the unlimited personal liability of the partnership form of business, so they incorporated as Ameen Canoes, Inc. The charter from the state of Mississippi authorizes the corporation to issue 150,000 s
> The statement of cash flows of Spirit, Inc., reported the following for the year ended December 31, 2012: Cash flows from financing activities (amounts in millions) Cash dividends paid ............................................................... $(1,8
> The following accounts and related balances of Bluebird Designers, Inc., as of December 31, 2012, are arranged in no particular order. Requirements 1. Prepare Bluebird’s classified balance sheet in the account format at December 31, 2
> What are two main advantages that a corporation has over a proprietorship and a partnership? What are two main disadvantages of a corporation?
> Assume Frozen Foods of Maine, Inc., completed the following transactions during 2012, the company’s 10th year of operations: Feb 3 Issued 11,000 shares of common stock ($3.00 par) for cash of $275,000. Mar 19 Purchased 2,400 shares of the company’s own c
> Paris Jewelry Company reported the following summarized balance sheet at December 31, 2012: Assets Current assets................................................................................. $ 33,700 Property and equipment, net.......................
> Which of the following terms appears on a statement of cash flows—indirect method? a. Collections from customers b. Depreciation expense c. Payments to suppliers d. Cash receipt of interest revenue
> Reliable Outdoor Furniture Company included the following stockholders’ equity on its year-end balance sheet at February 28, 2013: Stockholders’ Equity Preferred stock, 7.5% cumulative—par value $15 per share; authorized 110,000 shares in each class Clas
> Fresh Produce Foods, Inc., is authorized to issue 3,750,000 shares of $5.00 par common stock. In its initial public offering during 2012, Fresh Produce issued 360,000 shares of its $5.00 par common stock for $5.50 per share. Over the next year, Fresh Pro
> Doorman Corp. has the following stockholders’ equity information: Doorman’s charter authorizes the company to issue 7,000 shares of 10% preferred stock with par value of $140 and 750,000 shares of no-par common stock. The company issued 1,400 shares of t
> The partners who own Jefferson Canoes Co. wished to avoid the unlimited personal liability of the partnership form of business, so they incorporated as Jefferson Canoes, Inc. The charter from the state of Nevada authorizes the corporation to issue 110,00
> Use the Easton data in Exercise E10-50B to show how the company reported cash flows from financing activities during 2012 (the current year). List items in descending order from largest to smallest dollar amount. Data from Exercise E10-50B Easton Compan
> Easton Company included the following items in its financial statements for 2012, the current year (amounts in millions): Requirements 1. Use DuPont analysis to compute Easton’s return on assets and return on common equity during 2012
> Lexington Inns reported these figures for 2013 and 2012 (in millions): Requirements 1. Use DuPont analysis to compute Lexington’s return on assets and return on common stockholders’ equity for 2013. 2. Do these rates
> Microsoft Corporation is the defendant in numerous lawsuits claiming unfair trade practices. Microsoft has strong incentives not to disclose these contingent liabilities. However, GAAP requires that companies report their contingent liabilities. Require
> The balance sheet of Beecham Rug Company reported the following: Redeemable preferred stock, 6%, $90 par value, redemption value $25,000; outstanding 200 shares..............................................................................................
> Solartech Corp. had the following stockholders’ equity at May 31 (dollars in millions, except par value per share): Stockholders’ Equity Common stock, $1.20 par, 900 million shares authorized, 400 million shares issued ….. $ 480 Additional paid-in capita
> Identify the effects—both the direction and the dollar amount—of these assumed transactions on the total stockholders’ equity of Triton Corporation. Each transaction is independent. a. Declaration of cash dividends of $75 million. b. Payment of the cash
> Selling equipment is reported on the statement of cash flows under a. Financing activities. b. Non-cash investing and financing activities. c. Operating activities. d. Investing activities.
> The stockholders’ equity for Perfect Desserts Drive-Ins (PD) on December 31, 2012, follows: Stockholders’ Equity Common stock, $0.75 par, 2,700,000 shares authorized, 500,000 shares issued …….. $ 375,000 Paid-in capital in excess of par—common …………………………
> Majestic Manufacturing, Inc., reported the following: Stockholders’ Equity Preferred stock, cumulative, $2.00 par, 8%, 70,000 shares issued ………….. $ 140,000 Common stock, $0.15 par, 9,070,000 shares issued ……………..…….………….. 1,360,500 Majestic Manufacturi
> Zeta Products Company reported the following stockholders’ equity on its balance sheet: Requirements 1. What caused Zeta’s preferred stock to decrease during 2013? Cite all possible causes. 2. What caused Zetaâ
> Use the Northern Corporation data in Exercise 10-41B to prepare the stockholders’ equity section of the company’s balance sheet at December 31, 2013. In Exercise 10-41B At December 31, 2012, Northern Corporation reported the stockholders’ equity account
> At December 31, 2012, Northern Corporation reported the stockholders’ equity accounts shown here (with dollar amounts in millions, except per-share amounts). Common stock $4.00 par value per share, 2,300 million shares issued................ $ 9,200 Paid
> Journalize the following assumed transactions of Ambient Productions: Feb 22 Issued 1,800 shares of $1.75 par common stock at $5 per share. Jun 25 Purchased 400 shares of treasury stock at $14 per share. Jul 9 Sold 300 shares of treasury stock at $22 per
> In 2002, Enron Corporation fi led for Chapter 11 bankruptcy protection, shocking the business community: How could a company this large and this successful go bankrupt? This case explores the causes and the effects of Enron’s bankruptcy
