Question: Southwest Airlines Co. (LUV) provides passenger

> Classify each of the following expenditures as either a revenue or capital expenditure: (a) installation of a video messaging system on a semitrailer, (b) changing oil in a delivery truck, (c) purchase of a color copier.

> Immediately after a used truck is acquired, a new motor is installed and the tires are replaced at a total cost of $4,300. Is this a capital expenditure or a revenue expenditure?

> Which of the following qualities are characteristic of fixed assets? (a) tangible, (b) capable of repeated use in the normal operations of the business, (c) not held for sale in the normal course of business, (d) not used in the operations of the busines

> A firm has consistently adjusted its allowance account at the end of the fiscal year by adding a fixed percent of the period’s sales on account. After 10 years, the balance in Allowance for Doubtful Accounts has become very large in relationship to the b

> What kind of an account (asset, liability, etc.) is Allowance for Doubtful Accounts?

> Using your answers to MBA 2-6 and MBA 2-7, compare and analyze Year 2 common-sized income statements of Kellogg (K) to those of General Mills (GIS). Data from MBA 2-6: Kellogg Company (K) produces, markets, and distributes cereal and food products inclu

> Which of the two methods of accounting for uncollectible accounts provides for the recognition of the expense at the earlier date?

> Carter’s Hardware is a small hardware store in the rural township of Oglethorpe that rarely extends credit to its customers in the form of an account receivable. The few customers that are allowed to carry accounts receivable are long-time residents of O

> Give two examples of other receivables.

> In what section of the balance sheet should a note receivable be listed if its term is (a) 90 days, (b) 12 years?

> What types of transactions give rise to accounts receivable?

> How is the method of determining the cost of inventory and the method of valuing it disclosed in the financial statements?

> Under what section should accounts receivable be reported on the balance sheet?

> What is the LIFO reserve, and why would an analyst be careful in interpreting the earnings of a company that has liquidated some of its LIFO reserve?

> If inventory is being valued at cost and the price level is steadily rising, which of the three methods of costing—FIFO, LIFO, or average cost will yield the lowest annual income tax expense? Explain.

> Which of the three methods of inventory costing—FIFO, LIFO, or average cost—will in general yield an inventory cost most nearly approximating current replacement cost?

> General Mills Inc. (GIS) produces, markets, and distributes cereal and food products including Cheerios, Wheaties, Cocoa Puffs, Yoplait, and Pillsbury branded products. The following partial income statements (in millions) were adapted from recent ï

> If inventory is being valued at cost and the price level is steadily rising, which of the three methods of costing—FIFO, LIFO, or average cost—will yield (a) the highest inventory cost, (b) the lowest inventory cost, (c) the highest gross profit, (d) th

> Does the term last-in in the LIFO method mean that the items in the inventory are assumed to be the most recent (last) acquisitions? Explain.

> Do the terms FIFO and LIFO refer to techniques used in determining quantities of the various classes of merchandise on hand? Explain.

> What are the three classifications of receivables?

> How does a policy of rotating clerical employees from job to job aid in strengthening the control procedures within the control environment? Explain.

> Define internal control.

> (a) How are cash equivalents reported on the financial statements? (b) What are some examples of cash equivalents?

> Do items reported as a credit memorandum on the bank statement represent (a) additions made by the bank to the company’s balance or (b) deductions made by the bank from the company’s balance? Explain.

> The balance of Cash is likely to differ from the bank statement balance. What two factors are likely to be responsible for the difference?

> The accounting clerk pays all obligations by pre numbered checks. What are the strengths and weaknesses in the internal control over cash payments in this situation?

> Kellogg Company (K) produces, markets, and distributes cereal and food products including Cheez-It, Coco Pops, Rice Krispies, and Pringles. The following partial income statements (in millions) were adapted from recent financial statements

> Before a voucher for the purchase of merchandise is approved for payment, supporting documents should be compared to verify the accuracy of the liability. Give an example of a supporting document for the purchase of merchandise.

> Assume that Leslie Hunter, accounts payable clerk for Campland Inc., stole $185,000 by paying fictitious invoices for goods that were never received. The clerk set up accounts in the names of fictitious companies and cashed the checks at a local bank. De

> Differentiate between the multiple and single-step forms of the income statement.

> When you purchase a new car, the “sticker price” includes a “destination” charge. Are you purchasing the car FOB shipping point or FOB destination? Explain.

> Office Outfitters Inc., which uses a perpetual inventory system, experienced an inventory shrinkage of $3,750. What accounts would be increased and decreased to record the adjustment for the inventory shrinkage at the end of the accounting period?

> What type of revenue is reported in the “Other revenue” section of the multiple-step income statement?

> Can a business earn a gross profit but incur a net loss? Explain.

> Why are adjustments needed at the end of an accounting period?

> Is the Land balance before the accounts have been adjusted the amount that should normally be reported on the balance sheet? Explain.

> Which of the following accounts would appear only in an accrual basis accounting system, and which could appear in either a cash basis or an accrual basis accounting system? (a) Common Stock, (b) Fees Earned, (c) Accounts Receivable, (d) Land, (e) Utilit

> Using your answers to MBA 2-3 and MBA 2-4, compare and comment on the operating results of Delta and Southwest. Data from MBA 2-3: Delta Air Lines, Inc. (DAL) provides cargo and passenger services throughout the world. The following operating data (in m

> Fees for services provided are billed to a customer during 20Y6. The customer remits the amount owed in 20Y7. During which year would the revenues be reported on the income statement under (a) the cash basis? (b) the accrual basis?

> Does every adjustment have an effect on determining the amount of net income for a period? Explain.

> Land with an assessed value of $500,000 for property tax purposes is acquired by a business for $600,000. Four years later, the plot of land has an assessed value of $750,000 and the business receives an offer of $975,000 for it. Should the monetary amou

> On October 1, Wok Repair Service extended an offer of $100,000 for land that had been priced for sale at $150,000. On December 19, Wok Repair Service accepted the seller’s counteroffer of $110,000. Describe how Wok Repair Service should record the land.

> Billy Jessop is the owner of Valley Delivery Service. Recently, Billy paid interest of $6,000 on a personal loan of $75,000 that he used to begin the business. Should Valley Delivery Service record the interest payment? Explain.

> If the effect of an adjustment is to increase the balance of a liability account, which of the following statements describes the effect of the adjustment on the other account? a. Increases the balance of a revenue account b. Increases the balance of an

> For a recent year ending January 31, Target Corporation had revenues of $72,618 million and total expenses of $74,254 million. Did Target Corporation report a net loss or a net income?

> If the effect of an adjustment is to increase the balance of an asset account, which of the following statements describes the effect of the adjustment on the other account? a. Increases the balance of a revenue account b. Increases the balance of a liab

> Assume that as of January 1, 20Y8, Sylvester Consulting has total assets of $500,000 and total liabilities of $150,000. As of December 31, 20Y8, Sylvester has total liabilities of $200,000 and total stockholders’ equity of $400,000. (a) What was Sylveste

> Identify the four different categories of adjustments frequently required at the end of an accounting period.

> (a) How does the payment of dividends of $15,000 affect the three elements of the accounting equation? (b) Is net income affected by the payment of dividends? Explain.

> What services does eBay offer its customers?

> Capstone Consulting Services acquired land 5 years ago for $200,000. Capstone recently signed an agreement to sell the land for $375,000. In accordance with the sales agreement, the buyer transferred $375,000 to Capstone’s bank account on February 20. Ho

> What is a primary control for determining the accuracy of a business’s record keeping?

> Employees performed services in 20Y8, but the wages were not paid until 20Y9. During which year would the wages expense be reported on the income statement under (a) the cash basis? (b) the accrual basis?

> Indicate whether the following error would cause the accounting equation to be out of balance and, if so, indicate how it would be out of balance. The payment of utilities of $1,200 was recorded as a decrease in cash of $1,200 and a decrease in retained

> What distinguishes a retail business from a service business?

> During the preparation of the bank reconciliation for Apache Grading Co., Sarah Ferrari, the assistant controller, discovered that Rocky Spring Bank incorrectly recorded a $610 check written by Apache Grading Co. as $160. Sarah has decided not to notify

> Using data in E6-18, indicate the effects of valuing inventory using lower of cost or market on the liquidity metric days’ sales in inventory and profitability metric return on sales. Data from Exercise 6-18: On the basi

> Using data in E6-16, indicate the effects of selecting FIFO and LIFO on the liquidity metric days’ sales in inventory and profitability metric return on sales. Data from Exercise 6-16: Assume that a firm separately determined inventory under FIFO and LIFO

> Delta Air Lines, Inc. (DAL) provides cargo and passenger services throughout the world. The following operating data (in millions) were adapted from recent financial statements of Delta. 1. Prepare common-sized income statements for Year

> Using transactions listed in E6-8, indicate the effects of the adjustment on the liquidity metric days’ sales in receivables and profitability metric return on sales. Data from Exercise 6-8: Using the data in Exercise 6-7, assume that the allowance for d

> Using the data from E7-3, indicate the effects of purchasing the land on the liquidity metric free cash flow and profitability metric asset turnover. Assume all costs were paid in cash and cash was received for the salvaged materials. Data from Exercise 7

> Using the data from E8-22, indicate the effects on net assets and EPS of the stock split. Data from Exercise 8-22: Audrey’s Restaurant Corporation wholesales ovens and ranges to restaurants throughout the Northwest. Audrey’s Restaurant Corporation, whic

> Using the data from E8-19, indicate the effects on net assets and EPS for the following transactions: 1. Purchase of the Treasury stock on April 2. 2. Sale of the Treasury stock on January 25 of the following year. Data from Exercise 8-19: Banff Water I

> Using the data from P8-2, indicate the effects on net assets and EPS of each of the following: 1. Recording the payroll. 2. Recording the payroll taxes. 3. Paying the payroll and payroll taxes. Data from Problem 8-2: The following information about the

> Using the data from E8-4, indicate the effects on net assets and earnings per share (EPS) of each of the following: 1. Issuing the notes payable. 2. Payment of the note at maturity, including interest. Data from Exercise 8-4: A business issued a 90-day,

> Indicate whether each of the following types of transactions will (a) increase stockholders’ equity or (b) decrease stockholders’ equity. a. Issued common stock for cash. b. Received cash for fees earned. c. Paid cash for utilities expense. d. Paid cash

> A vacant lot acquired for $500,000, on which there is a balance owed of $300,000, is sold for $660,000 in cash. The seller pays the $300,000 owed. What is the effect of these transactions on the total amount of the seller’s (1) assets, (2) liabilities, a

> The income statement of a corporation for the month of November indicates a net income of $90,000. During the same period, $100,000 in cash dividends were paid. Would it be correct to say that the business incurred a net loss of $10,000 during the month?

> Assume that the amount of each of the following items is material to the financial statements. Classify each item as either normally recurring (NR) or unusual (U) items. If unusual item, then specify if it is a discontinued operations item (DO). a. Intere

> Using transactions listed in P2-2 for Up-Date Computer Services indicate the effects of each transaction on the liquidity metric Cash and profitability metric Net Income – Cash Basis. Data from Problem 2-2: James Nesbitt established Up-Date Computer Serv

> Audrey’s Restaurant Corporation wholesales ovens and ranges to restaurants throughout the Northwest. Audrey’s Restaurant Corporation, which had 50,000 shares of common stock outstanding, declared a 6-for-1 stock split. a. What will be the number of share

> Back in Time Inc. warrants its products for one year. The estimated product warranty is 2% of sales. Assume that sales were $1,250,000 for March. In April, a customer received warranty repairs requiring $750 of parts. a. Determine the warranty liability

> Sandblasting equipment acquired at a cost of $42,000 has an estimated residual value of $6,000 and an estimated useful life of 10 years. It was placed in service on October 1 of the current fiscal year, which ends on December 31, 20Y5. Determine the depre

> Equipment acquired at the beginning of the fiscal year at a cost of $360,000 has an estimated residual value of $45,000 and an estimated useful life of 10 years. Determine the following: (a) the amount of annual depreciation by the straight-line method an

> A refrigerator used by a meat processor has a cost of $90,000, an estimated residual value of $15,000, and an estimated useful life of 20 years. What is the amount of the annual depreciation computed by the straight-line method?

> Convert each of the following estimates of useful life to a straight-line depreciation rate, stated as a percentage, assuming that the residual value of the fixed asset is to be ignored: (a) 2 years, (b) 4 years, (c) 10 years, (d) 20 years, (e) 25 years,

> Snowy Ridges Ski Co. has developed a tract of land into a ski resort. The company has cut the trees, cleared and graded the land and hills, and constructed ski lifts. (a) Should the tree cutting, land clearing, and grading costs of constructing the ski s

> Debra Bundy owns and operates DB Transport Co. During the past year, Debra incurred the following costs related to an 18-wheel truck: 1. Changed engine oil. 2. Installed a television in the sleeping compartment of the truck. 3. Installed a wind deflector

> About Time Delivery Co. incurred the following costs related to trucks and vans used in operating its delivery service: 1. Changed the oil and greased the joints of all the trucks and vans. 2. Changed the radiator fluid on a truck that had been in servic

> For Target Corporation (TGT), indicate whether the following transactions would (1) increase, (2) decrease, or (3) have no effect on stockholders’ equity. a. Borrowed money from the bank. b. Paid creditors. c. Made cash sales to customers. d. Purchase

> Using transactions listed in P2-1 for Stanley Insurance Inc. indicate the effects of each transaction on the liquidity metric Cash and profitability metric Net Income – Cash Basis. MBA Data fr0m Problem 2-1: Les Stanley established an insurance agency o

> Summer Wilks owns and operates Wilks Services. During July, Wilks Services incurred the following costs in acquiring two printing presses. One printing press was new, and the other was used by a business that recently filed for bankruptcy. Costs related t

> Using the data in Exercise 6-10, assume that during the second year of operations Fisher Plumbing Supply Co. had sales of $3,000,000, wrote off $20,000 of accounts as uncollectible using the direct write-off method, and reported net income of $140,000. a

> During its first year of operations, Fisher Plumbing Supply Co. had sales of $2,780,000, wrote off $16,000 of accounts as uncollectible using the direct write-off method, and reported net income of $120,000. Determine what the net income would have been i

> Which of the reconciling items listed in Exercise 5-16 are required to be recorded in the company’s accounts? Data from Exercise 5-16: Identify each of the following reconciling items as: (a) an addition to the cash balance according to the bank stateme

> Identify each of the following reconciling items as: (a) an addition to the cash balance according to the bank statement, (b) a deduction from the cash balance according to the bank statement, (c) an addition to the cash balance according to the company’

> The actual cash received from the day’s cash sales was $9,380 and the amount indicated by the cash register total was $9,300. a. What is the amount deposited in the bank for the day’s sales? b. What is amount recorded for the day’s sales? c. How should t

> The actual cash received from the day’s cash sales was $18,125 and the amount indicated by the cash register total was $18,200. a. What is the amount deposited in the bank for the day’s sales? b. What is the amount recorded for the day’s sales? c. How sh

> The mailroom employees send all remittances and remittance advices to the cashier. The cashier deposits the cash in the bank and forwards the remittance advices and duplicate deposit slips to the Accounting Department. a. Indicate the weak link in intern

> Determine the amount to be paid in full settlement of each of the following invoices, assuming that credit for returns and allowances was received prior to payment and that all invoices were paid within the discount period. Freight Paid by Seller Re

> Burr Company purchased merchandise on account from a supplier for $18,000, terms 2/10, n/30. Burr Company returned $3,000 of the merchandise before payment was made and received full credit. a. If Burr Company pays the invoice within the discount period,

> Marriott International Inc. (MAR) and Hilton Wordwide Holdings Inc. (HLT) operate hotels worldwide. The following data (in millions) were adapted from recent financial statements of Marriott and Hilton. 1. Compute the asset turnover for

> Alex Hayden is the sole stockholder and operator of Elevate and Succeed, a motivational consulting business. At the end of its accounting period, December 31, 20Y7, Elevate and Succeed has assets of $1,200,000 and liabilities of $375,000. Using the accou

> For a recent year, Target Corporation (TGT) reported revenue of $72,618 million. Its gross profit was $21,340 million. What was the amount of Target’s cost of goods sold?

> The following expenses were incurred by a retail business during the year. In which expense section of the income statement should each be reported: (a) selling, (b) administrative, or (c) other? 1. Advertising expense 2. Depreciation expense on store eq

> A sale of merchandise on account for $5,000 is subject to an 8% sales tax. (a) Should the sales tax be recorded at the time of sale or when payment is received? (b) What is the amount of the sale? (c) What is the amount of the increase to Accounts Receiv

> Merchandise is sold on account to a customer for $8,000, terms FOB s hipping point, 1/10, n/30. The seller paid the freight of $300. Determine the following: (a) amount of the sale, (b) amount debited to Accounts Receivable, (c) amount of the discount f

> During the current year, merchandise is sold for $6,400,000. The cost of the goods sold is $5,376,000. a. What is the amount of the gross profit? b. Compute the gross profit percent. c. Will the income statement necessarily report a net income? Explain.

> The prepaid insurance account had a balance of $9,600 at the beginning of the year. The account was increased for $28,800 for premiums on policies purchased during the year. What is the adjustment required at the end of the year for each of the following