Just prior to filing for bankruptcy protection in 2009, General Motors asked its bondholders to exchange their investment in GM’s bonds for GM stock. The bondholders rejected this proposal. Why might GM have proposed this exchange? Why might the bondholders have rejected it?
> Refer to M11-4. Assume the issued stock has no par value. Analyze the accounting equation effects and record the journal entry for the issuance of the no-par value stock at $50. Do the effects on total assets, total liabilities, and total stockholders’ e
> To expand operations, Aragon Consulting issued 1,000 shares of previously unissued common stock with a par value of $1. The price for the stock was $50 per share. Analyze the accounting equation effects and record the journal entry for the stock issuance
> The balance sheet for Crutcher Corporation reported 200,000 shares outstanding, 300,000 shares authorized, and 20,000 shares in treasury stock. Compute the maximum number of new shares that Crutcher could issue
> Face 2 Face Corporation reports 100 outstanding shares, 500 authorized shares, and 50 shares of treasury stock. How many shares are issued?
> To reduce its stock price, Shriver Food Systems, Inc., declared and issued a 100 percent stock dividend. The company has 800,000 shares authorized and 200,000 shares outstanding. The par value of the stock is $1 per share and the market value is $100 per
> On January 2, Daniel Harrison contributed $20,000 to start his business. At the end of the year, the business had generated $30,000 in sales revenues, incurred $18,000 in operating expenses, and distributed $5,000 for Daniel to use to pay some personal e
> Last year, Rec Room Sports reported earnings per share of $8.50 when its stock price was $212.50. This year, its earnings increased by 20 percent. If the P/E ratio remains constant, what is likely to be the price of the stock? Explain.
> From last year to this year, Berry Barn reported that its Net Sales increased from $300,000 to $400,000 and its Gross Profit increased from $90,000 to $130,000. Was the Gross Profit increase caused by (a) an increase in sales volume only, (b) an increase
> Briefly distinguish financial accounting from managerial accounting.
> From last year to this year, Colossal Company’s current ratio increased and its inventory turnover decreased. Does this imply a higher, or lower, risk of obsolete inventory?
> Slow Cellar’s current ratio increased from 1.2 to 1.5. What is one favorable interpretation of this change? What is one unfavorable interpretation of this change?
> Why are some analyses called horizontal and others called vertical?
> What benchmarks are commonly used for interpreting ratios?
> What benchmarks are commonly used for interpreting ratios?
> What is ratio analysis? Why is it useful?
> How is a year-over-year percentage calculated?
> Tec gear is an electronics company in the United States. It uses the LIFO inventory method. You plan to compare its ratios to those of Euro text, but you are concerned because Euro text uses IFRS. What accounting policy difference is certain to exist bet
> Explain where and how discontinued operations are reported on the income statement.
> What is the going-concern assumption? What is a goingconcern problem? What factors can contribute to such a problem?
> Val is opening a hair salon, but she does not know what business form it should take. Tell her about the advantages and disadvantages of operating as a sole proprietorship versus a corporation.
> What is the primary objective of financial reporting?
> What is the primary objective of financial reporting?
> What are the two essential characteristics of useful financial information? What other characteristics enhance the usefulness of financial information?
> Explain whether the following situations, taken independently, would be favorable or unfavorable: (a) increase in gross profit percentage, (b) decrease in inventory turnover ratio, (c) increase in earnings per share, (d) decrease in days to collect, and
> What is the general goal of trend analysis?
> Explain why a $50,000 increase in inventory during the year must be included in computing cash flows from operating activities under both the direct and indirect methods.
> Explain why cash outflows during the period for purchases and salaries are not specifically reported on a statement of cash flows prepared using the indirect method
> Under the indirect method, depreciation expense is added to net income to report cash flows from operating activities. Does depreciation cause an inflow of c
> Describe the types of items used to compute cash flows from operating activities under the two alternative methods of reporting
> What are the typical cash inflows from operating activities? What are the typical cash outflows from operating activities?
> Define accounting.
> What are the major categories of business activities reported on the statement of cash flows? Define each of these activities.
> What are cash equivalents? How are they reported on the statement of cash flows?
> What information does the statement of cash flows report that is not reported on the other required financial statements?
> (Supplement 12A) How is the sale of equipment reported on the statement of cash flows using the indirect method?
> What are noncash investing and financing activities? Give one example. How are noncash investing and financing activities reported on the statement of cash flows?
> What are the typical cash inflows from financing activities? What are the typical cash outflows from financing activities?
> What are the typical cash inflows from investing activities? What are the typical cash outflows from investing activities?
> As a junior analyst, you are evaluating the financial performance of Digilog Corporation. Impressed by this year’s growth in sales (20% increase), receivables (40% increase), and inventories (50% increase), you plan to report a favorable evaluation of th
> Loan covenants require that E-Gadget Corporation (EGC) generate $200,000 cash from operating activities each year. Without intervening during the last month of the current year, EGC will generate only $180,000 cash from operations. What are the pros and
> Compare the purposes of the income statement, the balance sheet, and the statement of cash flows
> In what ways might accounting frauds be similar to cases of academic dishonesty?
> Brothers Harry and Herman Hausyerday began operations of their machine shop (H & H Tool, Inc.) on January 1, 2016. The annual reporting period ends December 31. The trial balance on January 1, 2018, follows (the amounts are rounded to thousands of do
> What is treasury stock? Why do corporations acquire their own stock to hold in treasury?
> What items are included in Accumulated Other Comprehensive Income (Loss)?
> What are the usual characteristics of preferred stock?
> What is the distinction between par value and no-par value capital stock?
> What are the differences between common stock and preferred stock?
> Explain each of the following terms: (a) authorized common stock, (b) issued common stock, and (c) outstanding common stock.
> You work for a public company that has relied heavily on debt financing in the past and is now considering a preferred stock issuance to reduce its debt-to-assets ratio. Debtto-assets is one of the key ratios in your company’s loan covenants. Should the
> What are the relative advantages of equity versus debt financing?
> What is one interpretation of a high P/E ratio?
> Briefly define what an ethical dilemma is and describe the steps to consider when evaluating ethical dilemmas.
> How do stock repurchases affect the EPS and ROE ratios?
> Why is the EPS number so popular? What are its limitations?
> Identify and explain four important dates with respect to dividends.
> Your company has been very profitable and expects continued financial success. Its stock price has reached a point where the company needs to make it more affordable. Would you recommend a stock dividend or a stock split? Why?
> What are the primary reasons for issuing a stock dividend?
> What is a stock dividend? How does a stock dividend differ from a cash dividend?
> What is the difference between cumulative and noncumulative preferred stock?
> What are the two financial requirements to support the declaration of a cash dividend? What are the effects of a cash dividend on assets and stockholders’ equity?
> How is treasury stock reported on the balance sheet? How is the “gain or loss” on reissued treasury stock reported on the financial statements?
> Identify the primary advantages of the corporate form of business.
> What is the main goal for accounting rules in the United States and around the world? What characteristics must financial information possess to reach that goal?
> What are the reasons that some bonds are issued at a discount and others are issued at a premium?
> If a company has a long-term loan that has only two years remaining until it matures, how is it reported on the balance sheet (a) this year and (b) next year?
> Your company plans to hire an employee at a yearly salary of $70,000. Someone in your company says the actual cost will be lower because of payroll deductions. Someone else says it will be higher. Who is right? What is likely to be the total cost to the
> Why are payroll taxes and sales taxes considered liabilities?
> Why is Deferred Revenue considered a liability?
> Define accrued liability. Give an example of a typical accrued liability.
> What three factors influence the dollar amount reported for liabilities?
> Define liability. What’s the difference between a current liability and a long-term liability?
> Over the period to maturity, why does yearly interest expense decrease on an installment note?
> How is interest expense calculated using the simplified approach to the effective-interest method for a bond issued at (a) a discount and (b) a premium?
> Briefly describe the organization responsible for developing accounting measurement rules (generally accepted accounting principles) in the United States.
> How is interest expense calculated using the effective-interest method of amortization for a bond issued at (a) a discount and (b) a premium?
> How is interest expense calculated using the straight-line method of amortization for a bond issued at (a) a discount and (b) a premium?
> What is a contingent liability? How is a contingent liability reported under GAAP? How does this differ under IFRS?
> What is the difference between a secured bond and a debenture? Which type carries more risk for the lender?
> What is the carrying value of a bond payable?
> Will the stated interest rate be higher than the market interest rate or will the market interest rate be higher than the stated interest rate when a bond is issued at (a) face value, (b) a discount, and (c) a premium?
> What is the difference between the stated interest rate and the market interest rate on a bond?
> Describe three ways in which liabilities are used to finance business activities.
> What type of depreciation expense pattern is used under each of the following methods and when is its use appropriate? a. The straight-line method. b. The units-of-production method. c. The double-declining-balance method.
> In computing depreciation, three values must be known or estimated. Identify and describe each.
> Describe the equation that provides the structure for the statement of cash flows. Explain the three major types of activities reported on the statement.
> Describe the relationship between the expense recognition (“matching”) principle and accounting for long-lived assets
> Describe the relationship between the expense recognition (“matching”) principle and accounting for long-lived assets
> Distinguish between ordinary repairs and extraordinary repairs. How is each accounted for?
> Waste Management, Inc., regularly incurs costs (e.g., salaries, legal fees, travel) to find new locations for landfill sites. What reasons support capitalizing these costs? What reasons support expensing these costs?
> What is the term for recording costs as assets rather than as expenses? Describe how the decision to record costs as assets, rather than expenses, affects the balance sheet and income statement
> Over what period should an addition to an existing long-lived asset be depreciated? Explain.
> Under the cost principle, what amounts should be recorded as a cost of a long-lived asset?
> How does depletion affect the balance sheet and income statement? Why is depletion accounted for in a manner that differs from depreciation and amortization?
> Johnson & Johnson, the maker of Tylenol, uses GAAP. Bayer, the maker of aspirin, uses IFRS. Explain what complications might arise when comparing the long-lived assets of these two companies.
> How is the fixed asset turnover ratio computed? Explain its meaning.
> Describe the equation that provides the structure for the statement of retained earnings. Explain the four major items reported on the statement of retained earnings
> FedEx Corporation reports the cost of its aircraft in a single category called Flight Equipment. What impact would adopting IFRS have on this aspect of FedEx’s accounting?
> Define goodwill. When is it appropriate to record goodwill as an intangible asset? When is its value decreased?
> Distinguish between depreciation and amortization.
