Obtain a copy of the annual report of McDonald’s Corporation for the most recent year. You can find the annual report at the company’s website (www.mcdonalds.com) in the investor information section or at the Securities and Exchange Commission’s website (www.sec.gov) using EDGAR (Electronic Data Gathering, Analysis, and Retrieval). Form 10-K, which includes the annual report, is required to be filed on EDGAR. Search or scroll within the annual report to find the financial statements. Required: Determine the following from the company’s financial statements: 1. Do the company’s revenues exceed expenses? What is the amount of net income? 2. Did net income increase in the most recent year compared to the previous year? 3. Which assets are listed as current assets? Why are other assets not listed as current assets? 4. Which liabilities are listed as current liabilities? Why are other liabilities not listed as current liabilities? 5. By how much did retained earnings increase/decrease in the most recent year compared to the previous year? 6. What is the amount of dividends paid to common stockholders? This information can be found in the statement of shareholders’ equity or the statement of cash flows. 7. Explain the relationship between the change in retained earnings, net income, and dividends.
> Electronic Innovators is the defendant in a $10 million lawsuit filed by one of its customers, Aviation Systems. The litigation is in final appeal, and legal counsel advises that it is probable that Electronic Innovators will lose the lawsuit. The estima
> Consultants notify management of Discount Pharmaceuticals that a stroke medication poses a potential health hazard. Counsel indicates that a product recall is probable and is estimated to cost the company $8 million. How will this affect the company’s in
> Sony introduces a new compact music player to compete with Apple’s iPod that carries a two-year warranty against manufacturer’s defects. Based on industry experience with similar product introductions, warranty costs are expected to be approximately 3% o
> On November 1, Bahama Cruise Lines borrows $4 million and issues a six-month, 6% note payable. Interest is payable at maturity. Record the issuance of the note and the appropriate adjustment for interest expense at December 31, the end of the reporting p
> El Tapitio purchased restaurant furniture on September 1, 2021, for $45,000. Residual value at the end of an estimated 10-year service life is expected to be $6,000. Calculate depreciation expense for 2021 and 2022, using the straight-line method, and as
> Financial information for American Eagle is presented in Appendix A at the end of the book. Required: 1. What does the Report of Independent Registered Public Accounting Firm indicate about American Eagle’s internal controls? 2. In the summary of signifi
> Early in the fiscal year, The Beanery purchases a delivery vehicle for $40,000. At the end of the year, the machine has a fair value of $33,000. The company controller records depreciation expense of $7,000 for the year, the decline in the vehicle’s valu
> Betty Foods has separate patents for its chocolate chip cookie dough and vanilla ice cream. In the current year, both patents were challenged in court. Betty Foods spent $240,000 in legal fees to successfully defend its cookie dough, and $300,000 in lega
> Hanoi Foods incurs the following expenditures during the current fiscal year: (1) annual maintenance on its machinery, $8,900; (2) remodeling of offices, $42,000; (3) improvement of the shipping and receiving area, resulting in an increase in productivit
> West Coast Growers incurs the following costs during the year related to the creation of a new disease-resistant tomato plant. What amount should West Coast Growers report as research and development (R&D) expense in its income statement?
> Kosher Pickle Company acquires all the outstanding stock of Midwest Produce for $19 million. The fair value of Midwest’s assets is $14.3 million. The fair value of Midwest’s liabilities is $2.5 million. Calculate the amount paid for goodwill.
> Finley Co. is looking for a new office location and sees a building with a fair value of $400,000. Finley also notices that much of the equipment in the existing building would be useful to its own operations. Finley estimates the fair value of the equip
> Refer to the situation described in BE7–19. Assume the sum of estimated future cash flows is $32 million instead of $38 million. What amount of impairment loss should Vegetarian Delights record?
> Whole Grain Bakery purchases an industrial bread machine for $30,000. In addition to the purchase price, the company makes the following expenditures: freight, $2,000; installation, $4,000; testing, $1,500; and property tax on the machine for the first y
> Vegetarian Delights has been experiencing declining market conditions for its specialty foods division. Management decided to test the operational assets of the division for possible impairment. The test revealed the following: book value of the division
> The balance sheet of Cedar Crest Resort reports total assets of $840,000 and $930,000 at the beginning and end of the year, respectively. The return on assets for the year is 20%. Calculate Cedar Crest’s net income for the year.
> An examination of the cash activities during the year shows the following. Suzie has not reconciled the company’s cash balance with that of the bank since the company was started. She asks Summit Bank to provide her with a six-month ban
> China Inn and Midwest Chicken exchanged assets. Midwest Chicken received equipment and gave a delivery truck. The fair value and book value of the delivery truck given were $31,000 and $32,600 (original cost of $37,000 less accumulated depreciation of $4
> China Inn and Midwest Chicken exchanged assets. China Inn received a delivery truck and gave equipment. The fair value and book value of the equipment were $22,000 and $12,000 (original cost of $45,000 less accumulated depreciation of $33,000), respectiv
> Masterson Supply purchased a small storage building for $20,000 to be used over a five-year period. The building has no residual value. Early in the fourth year, the storage building burned down. Record the retirement of the remaining book value of the s
> Piper’s Pizza sold baking equipment for $25,000. The equipment was originally purchased for $72,000, and depreciation through the date of sale totaled $51,000. What was the gain or loss on the sale of the equipment?
> Granite Stone Creamery sold ice cream equipment for $16,000. Granite Stone originally purchased the equipment for $90,000, and depreciation through the date of sale totaled $71,000. What was the gain or loss on the sale of the equipment?
> In early January, Burger Mania acquired 100% of the common stock of the Crispy Taco restaurant chain. The purchase price allocation included the following items: $4 million, patent; $5 million, trademark considered to have an indefinite useful life; and
> Omaha Beef Co. purchased a delivery truck for $50,000. The residual value at the end of an estimated eight-year service life is expected to be $10,000. The company uses straight-line depreciation for the first six years. In the seventh year, the company
> Hawaiian Specialty Foods purchased equipment for $30,000. Residual value at the end of an estimated four-year service life is expected to be $3,000. The machine operated for 3,100 hours in the first year, and the company expects the machine to operate fo
> Fresh Veggies, Inc. (FVI), purchases land and a warehouse for $490,000. In addition to the purchase price, FVI makes the following expenditures related to the acquisition: broker’s commission, $29,000; title insurance, $1,900; and miscellaneous closing c
> For each item below, indicate whether FIFO or LIFO will generally result in a higher reported amount when inventory costs are rising versus falling. The first answer is provided as an example.
> You are a tutor for introductory financial accounting. You tell the students, “Recording adjusting entries is a critical step in the accounting cycle, and the two major classifications of adjusting entries are prepayments and accruals.” Chris, one of the
> Refer to the information in BE6–5. Calculate ending inventory and cost of goods sold for the year, assuming the company uses specific identification. Actual sales by the company include its entire beginning inventory, 230 units of inventory from the May
> Refer to the information in BE6–5. Calculate ending inventory and cost of goods sold for the year, assuming the company uses weighted-average cost.
> Refer to the information in BE6–5. Calculate ending inventory and cost of goods sold for the year, assuming the company uses LIFO.
> During the year, Wright Company sells 470 remote-control airplanes for $110 each. The company has the following inventory purchase transactions for the year. Calculate ending inventory and cost of goods sold for the year, assuming the company uses FIFO.
> For each company, calculate the missing amount.
> At the beginning of the year, Bryers Incorporated reports inventory of $8,000. During the year, the company purchases additional inventory for $23,000. At the end of the year, the cost of inventory remaining is $10,000. Calculate cost of goods sold for t
> Refer to the information in BE6–21. What impact will this error have on ending inventory and retained earnings in the current year and following year? Ignore any tax effects.
> Ebbers Corporation overstated its ending inventory balance by $15,000 in the current year. What impact will this error have on cost of goods sold and gross profit in the current year and following year?
> Financial information for American Eagle is presented in Appendix A at the end of the book. Required: 1. Calculate American Eagle’s percentage change in total assets and percentage change in net sales for the most recent year. 2. Calculate American Eagle
> Refer to the information in BE6–13, but now assume that Shankar uses a periodic system to record inventory transactions. Record the inventory purchase on February 2 and the payment on February 10.
> Tony and Suzie graduate from college in May 2021 and begin developing their new business. They begin by offering clinics for basic outdoor activities such as mountain biking or kayaking. Upon developing a customer base, they’ll hold their first adventure
> Maria comes to you for investment advice. She asks, “Which company’s stock should I buy? There are so many companies to choose from and I don’t know anything about any of them.” Required: Respond to Maria by explaining the two functions of financial acco
> The purpose of this research case is to introduce you to the Internet home pages of the Securities and Exchange Commission (SEC) and the Financial Accounting Standards Board (FASB). Required: 1. Access the SEC home page on the Internet (www.sec.gov). Und
> Suppose an auditor has been paid $1,000,000 each year for the past several years by a company to perform the audit of its annual financial statements. This company is the auditor’s largest client. In the current year, the auditor notices that the prelimi
> Financial information for American Eagle is presented in Appendix A at the end of the book, and financial information for Buckle is presented in Appendix B at the end of the book. Required: 1. Which company reports higher total assets? 2. Which company r
> Financial information for Buckle is presented in Appendix B at the end of the book. Required: 1. Determine the amounts Buckle reports for total assets, total liabilities, and total stockholders’ equity in the balance sheet for the most recent year. Verif
> Financial information for American Eagle is presented in Appendix A at the end of the book. Required: 1. Determine the amounts American Eagle reports for total assets, total liabilities, and total stockholders’ equity in the balance sheet for the most re
> Tony Matheson plans to graduate from college in May 2021 after spending four years earning a degree in sports and recreation management. Since beginning T-ball at age five, he’s been actively involved in sports and enjoys the outdoors. Each summer growin
> Investments in equity securities for which the investor has insignificant influence over the investee are classified for reporting purposes under the fair value method. What is fair value?
> How does a company determine whether to account for an equity investment using the fair value method or equity method or to prepare consolidated financial statements?
> Match each of the following inventory classifications with its definition.
> What is the relationship between the present value of a single amount and the present value of an annuity?
> What is an annuity?
> Define the present value of a single amount. What is the discount rate?
> Identify the three items of information necessary to calculate the future value of a single amount.
> Define interest. Explain the difference between simple interest and compound interest.
> Determine whether each of the following changes in risk ratios is good news or bad news about a company. a. Increase in receivables turnover. b. Decrease in inventory turnover. c. Increase in the current ratio. d. Increase in the debt to equity ratio.
> Which risk ratios best answer each of the following financial questions? a. How quickly is a company able to collect its receivables? b. How quickly is a company able to sell its inventory? c. Is the company able to make interest payments as they become
> What is the difference between liquidity and solvency?
> Explain why ratios that compare an income statement account with a balance sheet account should express the balance sheet account as an average of the beginning and ending balances.
> In performing horizontal analysis, why is it important to look at both the amount and the percentage change?
> Refer to the information in BE6–12, but now assume that Shankar uses a periodic system to record inventory transactions. Record the inventory purchase on February 2 and the inventory return on February 5.
> Two profitable companies in the same industry have similar total stockholders’ equity. However, one company has most of its equity balance in common stock, while the other company has most of its equity balance in retained earnings. Neither company has e
> In performing vertical analysis, we express each item in a financial statement as a percentage of a base amount. What base amount is commonly used for income statement accounts? For balance sheet accounts?
> Provide an example of an adjustment that improves the income statement and the balance sheet, but has no effect on cash flows.
> Explain the difference between vertical and horizontal analysis.
> Goal Line Products makes several year-end adjustments, including an increase in the allowance for uncollectible accounts, a write-down of inventory, a decrease in the estimated useful life for depreciation, and an increase in the liability reported for l
> Provide an example of an aggressive accounting practice. Why is this practice aggressive?
> Provide an example of a conservative accounting practice. Why is this practice conservative?
> Explain the difference between conservative and aggressive accounting practices.
> Shifting Formations, Inc., reports earnings per share of $1.30. In the following year, it reports bottom-line earnings per share of $1.25 but earnings per share on income before discontinued operations of $1.50. Is this trend in earnings per share favora
> Define earnings persistence. How does earnings persistence relate to the reporting of discontinued operations?
> Refer to the information in BE6–11, but now assume that Shankar uses a periodic system to record inventory transactions. Record the purchase of inventory on February 2, including the freight charges.
> Hash Mark, Inc., reports a return on assets of 8% and a return on equity of 12%. Why do the two rates differ?
> Determine whether each of the following changes in profitability ratios normally is good news or bad news about a company. a. Increase in profit margin. b. Decrease in asset turnover. c. Decrease in return on equity. d. Increase in the price-earnings rat
> Which profitability ratios best answer each of the following financial questions? a. What is the income earned for each dollar invested in assets? b. What is the income earned for each dollar of sales? c. What is the amount of sales for each dollar inves
> Pro Leather, a supplier to sporting goods manufacturers, has a current ratio of 0.90, based on current assets of $450,000 and current liabilities of $500,000. How, if at all, will a $100,000 purchase of inventory on account affect the current ratio?
> Identify the three types of comparisons commonly used in financial statement analysis.
> The executives at Peach, Inc., are confused. The company reports a net loss of $200,000, and yet its net cash flow from operating activities increased $300,000 during the same period. Is this possible? Explain.
> Describe the most common adjustments we use to convert net income to net cash flows from operations under the indirect method.
> Distinguish between the indirect method and the direct method for reporting net cash flows from operating activities. Which method is more common in practice? Which method provides a more logical presentation of cash flows?
> Briefly describe the four steps outlined in the text for preparing a statement of cash flows.
> Describe the basic format used in preparing a statement of cash flows, including the heading, the three major categories, and what is included in the last three lines of the statement.
> Refer to the information in BE6–10, but now assume that Shankar uses a periodic system to record inventory transactions. Record transactions for the purchase and sale of inventory.
> Why is it necessary to use an income statement, balance sheet, and additional information to prepare a statement of cash flows?
> Explain what we mean by noncash activities and provide an example.
> Why do we exclude depreciation expense and the gain or loss on sale of an asset from the operating activities section of the statement of cash flows under the direct method?
> Changes in current assets and current liabilities are used in determining net cash flows from operating activities. Changes in which balance sheet accounts are used in determining net cash flows from investing activities?Changes in which balance sheet ac
> What are the primary cash inflows and cash outflows under the direct method for determining net cash flows from operating activities?
> Describe the two primary strategies firms use to increase cash return on assets.
> Explain the difference between the calculation of return on assets and cash return on assets. How can cash-based ratios supplement the analysis of ratios based on income statement and balance sheet information?
> Bell Corporation purchases land by issuing its own common stock to the seller. No cash is exchanged. How do we report this transaction in the statement of cash flows, if at all?
> Provide three examples of financing activities reported in the statement of cash flows.
> A $10,000 investment on the books of a company is sold for $9,000. Under the indirect method, how does this transaction affect operating, investing, and financing activities?
> Using the amounts below, calculate the inventory turnover ratio, average days in inventory, and gross profit ratio.
> How does an increase in accounts receivable affect net income in relation to operating cash flows? Why? How does a decrease in accounts receivable affect net income in relation to operating cash flows? Why?
> Indicate whether each of the following items would be added or subtracted from net income in preparing the statement of cash flows using the indirect method: (a) an increase in current assets, (b) a decrease in current assets, (c) an increase in curre
> Describe how we report a gain or loss on the sale of an asset in the statement of cash flows using the indirect method. Why do we report it this way?
> Explain how we report depreciation expense in the statement of cash flows using the indirect method. Why do we report it this way?
> Identify and briefly describe the three categories of cash flows reported in the statement of cash flows.
> What is par value? How is it related to market value? How is it used in recording the issuance of stock?
> The articles of incorporation allow for the issuance of 1 million shares of common stock. During its first year, California Clothing issued 100,000 shares and reacquired 10,000 shares it held as treasury stock. At the end of the first year, how many shar
