Suppose Time Warner, Inc. , is having a bad year in 2012, as the company has incurred a $4.9 billion net loss. The loss has pushed most of the return measures into the negative column, and the current ratio dropped below 1.0. The company’s debt ratio is still only 0.27. Assume top management of Time Warner is pondering ways to improve the company’s ratios. In particular, management is considering the following transactions: 1. Sell off the cable television segment of the business for $30 million (receiving half in cash and half in the form of a long-term note receivable). Book value of the cable television business is $27 million. 2. Borrow $100 million on long-term debt. 3. Purchase treasury stock for $500 million cash. 4. Write off one-fourth of goodwill carried on the books at $128 million. 5. Sell advertising at the normal gross profit of 60%. The advertisements run immediately. 6. Purchase trademarks from NBC, paying $20 million cash and signing a one-year note payable for $80 million. Requirements 1. Top management wants to know the effects of these transactions (increase, decrease, or no effect) on the following ratios of Time Warner: a. Current ratio b. Debt ratio c. Times-interest-earned ratio (measured as [net income + interest expense]/interest expense) d. Return on equity e. Book value per share of common stock 2. Some of these transactions have an immediately positive effect on the company’s financial condition. Some are definitely negative. Others have an effect that cannot be judged as clearly positive or negative. Evaluate each transaction’s effect as positive, negative, or unclear.
> How do Solomon’s accrued liabilities affect the company’s statement of cash flows for 2012? a. Increase in cash provided by operating activities b. They don’t because the accrued liabilities are not y
> Use the Motorvehicles of Philadelphia data in Short Exercise 12-9 to compute the following: (Enter all amounts in thousands). a. Payments to employees b. Payments of other expenses In Short Exercise 12-9 Motorvehicles of Philadelphia, Inc., reported the
> Use the Motorvehicles of Philadelphia data in Short Exercise 12-9 to compute the following: (Enter all amounts in thousands.) a. Collections from customers b. Payments for inventory Data from Short Exercise 12-9 Motorvehicles of Philadelphia, Inc., repo
> Use the Motorvehicles of Philadelphia data in Short Exercise 12-9 to compute the following: (Enter all amounts in thousands.) a. New borrowing or payment of long-term notes payable. Motorvehicles of Philadelphia had only one long-term note payable transa
> Motorvehicles of Philadelphia, Inc., reported the following financial statements for 2012: Motorvehicles of Philadelphia, Inc. Income Statement Year Ended December 31, 2012 (In thousands) Service revenue ……â&
> Use the data in Short Exercise 12-7 to prepare Eldred Corporation’s statement of cash flows for the year ended June 30, 2012. Eldred uses the indirect method for operating activities. Data in Short Exercise 12-7 Eldred Corporation acco
> This short exercise demonstrates the similarity and the difference between two ways to acquire plant assets. Case A—Issue stock and buy the assets in separate transactions: Hampton, Inc., issued 17,000 shares of its $25 par common stock for cash of $850,
> Eldred Corporation accountants have assembled the following data for the year ended June 30, 2012: Prepare the operating activities section of Eldred’s statement of cash flows for the year ended June 30, 2012. Eldred uses the indirect
> Smith Clinic, Inc., is preparing its statement of cash flows (indirect method) for the year ended March 31, 2012. Consider the following items in preparing the company’s statement of cash flows. Identify each item as an operating activity—addition to net
> Incredible America Transportation (IAT) began 2012 with accounts receivable, inventory, and prepaid expenses totaling $48,000. At the end of the year, IAT had a total of $49,000 for these current assets. At the beginning of 2012, IAT owed current liabili
> Top managers of Harmony Inns are reviewing company performance for 2012. The income statement reports a 20% increase in net income over 2011. However, most of the increase resulted from a gain on insurance proceeds from fi re damage to a building. The ba
> Examine the statement of cash flows of Mirror, Inc. Suppose Mirror’s operating activities provided, rather than used, cash. Identify three things under the indirect method that could cause operating cash flows to be positive. Mirr
> How many items enter the computation of Solomon’s net cash provided by operating activities? a. 2 b. 5 c. 3 d. 7 Solomon Corporation formats operating cash flows by the indirect method. *The book value of equipment sold during 2012 w
> Bryant, Inc., has experienced an unbroken string of nine years of growth in net income. Nevertheless, the company is facing bankruptcy. Creditors are calling all of Bryant’s loans for immediate payment, and the cash is simply not available. It is clear t
> State how the statement of cash flows helps investors and creditors perform each of the following functions: a. Predict future cash flows b. Evaluate management decisions
> The income statement of Royal Bank of Singapore reported the following results of operations: Earnings before income taxes and extraordinary gain ............... $187,046 Income tax expense.................................................................
> Mike Magid Toyota is an automobile dealership. Magid’s annual report includes Note 1—Summary of Significant Accounting Policies as follows: Income Recognition Sales are recognized when cash payment is received or, in the case of credit sales, which repre
> At fiscal year-end 2012, Hana Printer and Delightful Doughnuts reported these adapted amounts on their balance sheets (amounts in millions): Hana Printer: Common stock, $0.01 par value, 2,700 shares issued …………………….. $ 27 Additional paid-in capital ……………
> Prudhoe Bay Oil Co. is having its initial public offering (IPO) of company stock. To create public interest in its stock, Prudhoe Bay’s chief financial officer has blitzed the media with press releases. One, in particular, caught your eye. On November 19
> What is the best source of income for a corporation? a. Prior-period adjustments b. Continuing operations c. Discontinued operations d. Extraordinary items
> Wave Water Company reported the following items on its statement of shareholders’ equity for the year ended December 31, 2012: Requirements 1. Determine the December 31, 2012, balances in Wave Water’s shareholders&ac
> At December 31, 2012, Rondeau Mall, Inc., reported stockholders’ equity as follows: Common stock, $1.50 par, 700,000 shares authorized, 310,000 shares issued............ $ 465,000 Additional paid-in capital................................................
> Dwelling, Inc., a household products chain, reported a prior-period adjustment in 2012. An accounting error caused net income of 2011 to be overstated by $16 million. Retained earnings at December 31, 2011, as previously reported, was $345 million. Net i
> Plato Holding Company operates numerous businesses, including motel, auto rental, and real estate companies. 2012 was interesting for Plato, which reported the following on its income statement (in millions): Net revenues.................................
> Photosmart Camera Co. sold equipment with a cost of $18,000 and accumulated depreciation of $6,000 for an amount that resulted in a gain of $4,000. What amount should Photosmart report on the statement of cash flows as “proceeds from sale of plant assets
> Hampton Loan Company’s balance sheet reports the following: Preferred stock, $80 par value, 8%, 11,000 shares issued ............ $ 880,000 Common stock, $2.50 par, 1,500,000 shares issued...................... 3,750,000 Treasury stock, common, 100,000 s
> During 2012, Campbell Heights Corp.’s income statement reported income of $300,000 before tax. The company’s income tax return fi led with the IRS showed taxable income of $260,000. During 2012, Campbell Heights was subject to an income tax rate of 25%.
> Assume that Better Buy Stores completed the following foreign-currency transactions: May 9 Purchased DVD players as inventory on account from Toyita, a Japanese company. The price was 400,000 yen, and the exchange rate of the yen was $0.0083. Jun 18 Paid
> The income statement and additional data of Value World, Inc., follow: Additional data: a. Collections from customers are $25,000 less than sales. b. Payments to suppliers are $1,600 more than the sum of cost of goods sold plus advertising expense. c.
> During 2012, Beta, Inc., had sales of $6.86 billion, operating profit of $2.20 billion, and net income of $3.40 billion. EPS was $4.80. On May 11, 2013, one share of Beta’s common stock was priced at $54.30 on the New York Stock Exchange. What investment
> The Bergeron Book Company’s accounting records include the following for 2012 (in thousands): Other revenues............................................................................... $ 1,500 Income tax expense—extraordinary gain ....................
> Suppose Whitney Cycles, Inc., reported a number of special items on its income statement. The following data, listed in no particular order, came from Whitney’s financial statements (amounts in thousands): 1. Show how the Whitney Cycl
> Revere Water Company reported the following items on its statement of shareholders’ equity for the year ended December 31, 2012: 1. Determine the December 31, 2012, balances in Revere Water’s shareholdersâ€
> At December 31, 2012, Mendonca Mall, Inc., reported stockholders’ equity as follows: Common stock, $0.50 par, 500,000 shares authorized, 350,000 shares issued......... $ 175,000 Additional paid-in capital..................................................
> Clean, Inc., a household products chain, reported a prior-period adjustment in 2012. An accounting error caused net income of 2011 to be understated by $15 million. Retained earnings at December 31, 2011, as previously reported, was $346 million. Net inc
> Prep Holding Company operates numerous businesses, including motel, auto rental, and real estate companies. 2012 was interesting for Prep, which reported the following on its income statement (in millions): Net revenues...................................
> Select an activity for each of the following transactions: 1. Paying cash dividends is a/an ___________ activity. 2. Receiving cash dividends is a/an ___________ activity.
> Palace Loan Company’s balance sheet reports the following: Preferred stock, $20 par value, 2%, 11,000 shares issued ............ $ 220,000 Common stock, $2.50 par, 1,100,000 shares issued..................... 2,750,000 Treasury stock, common, 120,000 sha
> During 2012, the Martell Heights Corp. income statement reported income of $500,000 before tax. The company’s income tax return fi led with the IRS showed taxable income of $440,000. During 2012, Martell Heights was subject to an income tax rate of 40%.
> ARM received $48,000,000 for the issuance of its stock on May 14. The par value of the ARM stock was only $48,000. Was the excess amount of $47,952,000 a profit to ARM? If not, what was it? Suppose the par value of the ARM stock had been $4 per share, $8
> Assume that Twitter Stores completed the following foreign-currency transactions: Jun 9 Purchased DVD players as inventory on account from Moshu, a Japanese company. The price was 600,000 yen, and the exchange rate of the yen was $0.0087. Jul 18 Paid Mos
> During 2012, Resource, Inc., had sales of $7.16 billion, operating profi t of $2.70 billion, and net income of $3.70 billion. EPS was $4.50. On June 9, 2013, one share of Resource’s common stock was priced at $54.20 on the New York Stock Exchange. What i
> The Moran Book Company accounting records include the following for 2012 (in thousands): Other revenues................................................................................ $ 1,700 Income tax expense—extraordinary gain.........................
> Suppose Dupree Cycles, Inc., reported a number of special items on its income statement. The following data, listed in no particular order, came from Dupree’s financial statements (amounts in thousands): Requirements 1. Show how the D
> The annual report of Westminster Computer, Inc., included the following: Management’s Annual Report on Internal Control over Financial Reporting The Company’s management is responsible for establishing and maintaining adequate control over financial repo
> Use the statement of stockholders’ equity to answer the following questions about Osborn Electronics Corporation: 1. How much cash did the issuance of common stock bring in during 2012? 2. What was the effect of the stock dividends on
> iLife, Inc., was set to report the following statement of retained earnings for the year ended December 31, 2012: iLife, Inc. Statement of Retained Earnings Year Ended December 31, 2012 Retained earnings, December 31, 2011 ………….……………………… $ 70,000 Net inc
> Baxter Motor Company has preferred stock outstanding and issued additional common stock during the year. 1. Give the basic equation to compute earnings per share of common stock for net income. 2. List the income items for which Baxter must report earnin
> On an indirect method statement of cash flows, a gain on the sale of plant assets would be a. Reported in the investing activities section. b. Ignored, since the gain did not generate any cash. c. Deducted from net income in the operating activities sect
> Jessica Johnson and Claudia Stein are opening a Submarine’s deli. Johnson and Stein need outside capital, so they plan to organize the business as a corporation. They come to you for advice. Write a memorandum informing them of the steps in forming a cor
> Selected accounts of Ainsley Antiques show the following: Requirement For each account, identify the item or items that should appear on a statement of cash flows prepared by the direct method. State where to report the item. Salary Payable Beginni
> The top management of Marquis Marketing Services examines the following company accounting records at August 29, immediately before the end of the year, August 31: Total current assets ..................... $ 324,500 Noncurrent assets....................
> The accounting records of Braintree Foods, Inc., include the following items at December 31, 2012: Requirements 1. Show how each relevant item would be reported on the Braintree Foods, Inc., classified balance sheet, including headings and totals for c
> Marco’s Sporting Goods is embarking on a massive expansion. Assume the plans call for opening 40 new stores during the next three years. Each store is scheduled to be 35% larger than the company’s existing locations, offering more items of inventory, and
> On December 31, 2012, Zugaboo Corp. issues 5%, 10-year convertible bonds payable with a maturity value of $5,000,000. The semiannual interest dates are June 30 and December 31. The market interest rate is 6%, and the issue price of the bonds is 92.56. Zu
> The notes to the Thankful Charities financial statements reported the following data on December 31, Year 1 (end of the fiscal year): Thankful Charities amortizes bonds by the effective-interest method and pays all interest amounts at December 31. Req
> 1. Journalize the following transactions of Lamothe Communications, Inc.: 2012 Jan 1 Issued $3,000,000 of 8%, 10-year bonds payable at 94. Interest payment dates are July 1 and January 1. Jul 1 Paid semiannual interest and amortized the bonds by the stra
> On February 28, 2012, Starfish Corp. issues 10%, fi ve-year bonds payable with a face value of $1,200,000. The bonds pay interest on February 28 and August 31. Starfish Corp. amortizes bonds by the straight-line method. Requirements 1. If the market int
> The board of directors of Media Plus authorizes the issue of $8,000,000 of 6%, 20-year bonds payable. The semiannual interest dates are May 31 and November 30. The bonds are issued on May 31, 2012, at par. Requirements 1. Journalize the following transa
> The following transactions of Happy Music Company occurred during 2012 and 2013: 2012 Mar 3 Purchased a piano (inventory) for $70,000, signing a six-month, 6% note payable. May 31 Borrowed $70,000 on a 5% note payable that calls for annual installment pa
> Sea Air Marine experienced these events during the current year. a. December revenue totaled $130,000; and, in addition, Sea Air collected sales tax of 7%. The tax amount will be sent to the state of New Hampshire early in January. b. On August 31, Sea A
> Columbia Motors is having a bad year. Net income is only $37,000. Also, two important overseas customers are falling behind in their payments to Columbia, and Columbia’s accounts receivable are ballooning. The company desperately needs a loan. The Columb
> Use the consolidated financial statements and the data in Amazon.com, Inc.’s annual report (Appendix A at the end of the book) to evaluate the company’s comparative performance for 2010 versus 2009. Use all the ratio analysis tools described in this chap
> The accounting records of Brighton Foods, Inc., include the following items at December 31, 2012: Requirements 1. Show how each relevant item would be reported on the Brighton Foods, Inc., classified balance sheet, including headings and totals for cur
> Tony Sporting Goods is embarking on a massive expansion. Assume plans call for opening 20 new stores during the next two years. Each store is scheduled to be 30% larger than the company’s existing locations, offering more items of inventory, and with mor
> On December 31, 2012, Laraboo Corp. issues 11%, 10-year convertible bonds payable with a maturity value of $4,000,000. The semiannual interest dates are June 30 and December 31. The market interest rate is 12%, and the issue price of the bonds is 94.265.
> The notes to the Giving Charities’ financial statements reported the following data on December 31, Year 1 (end of the fiscal year): Giving Charities’ amortizes bonds by the effective-interest method and pays all int
> 1. Journalize the following transactions of Laroux Communications, Inc.: 2012 Jan 1 Issued $4,000,000 of 6%, 10-year bonds payable at 95. Interest payment dates are July 1 and January 1. Jul 1 Paid semiannual interest and amortized bonds by the straight-
> On February 28, 2012, Dolphin Corp. issues 6%, 10-year bonds payable with a face value of $900,000. The bonds pay interest on February 28 and August 31. Dolphin Corp. amortizes bonds by the straight-line method. Requirements 1. If the market interest ra
> The board of directors of Radio Plus authorizes the issue of $7,000,000 of 9%, 25-year bonds payable. The semiannual interest dates are May 31 and November 30. The bonds are issued on May 31, 2012, at par. Requirements 1. Journalize the following transa
> The following transactions of Smooth Sounds Music Company occurred during 2012 and 2013: 2012 Mar 3 Purchased a piano (inventory) for $50,000, signing a six-month, 8% note payable. May 31 Borrowed $85,000 on an 8% note payable that calls for annual insta
> Salt Air Marine experienced these events during the current year. a. December revenue totaled $150,000; and, in addition, Salt Air collected sales tax of 6%. The tax amount will be sent to the state of North Carolina early in January. b. On August 31, Sa
> Write the journal entry required at April 1, 2013. Sunny Day Company sells $400,000 of 13%, 10-year bonds for 97 on April 1, 2012. The market rate of interest on that day is 13.5%. Interest is paid each year on April 1.
> Applied Technology, Inc., and Four-Star Catering are asking you to recommend their stock to your clients. Because Applied and Four-Star earn about the same net income and have similar financial positions, your decision depends on their statements of cash
> Write the adjusting entry required at December 31, 2012. Sunny Day Company sells $400,000 of 13%, 10-year bonds for 97 on April 1, 2012. The market rate of interest on that day is 13.5%. Interest is paid each year on April 1.
> United Nation Financial Services is considering two plans for raising $900,000 to expand operations. Plan A is to borrow at 10%, and plan B is to issue 250,000 shares of common stock at $3.60 per share. Before any new financing, United Nation Financial S
> Companies that operate in different industries may have very different financial ratio values. These differences may grow even wider when we compare companies located in different countries. Compare three leading companies on their current ratio, debt ra
> Footnote 7 of AnnTaylor Stores Corp.’s financial statements for fiscal year 2010 contains the following information: 7. Commitments and Contingencies Operating Leases The Company occupies its retail stores and administrative facilities under operating le
> Lowell Co. issued $450,000 of 5% (0.05), 10-year bonds payable on January 1, 2010, when the market interest rate was 6% (0.06). The company pays interest annually at year-end. The issue price of the bonds was $416,880. Requirement Create a spreadsheet m
> On June 30, 2012, the market interest rate is 7%. Victory Sports Ltd. issues $1,600,000 of 8%, 25-year bonds payable at a price of 111.75. The bonds pay interest on June 30 and December 31. Victory Sports Ltd. Amortizes bonds by the effective-interest me
> Winner Sports Ltd. is authorized to issue $4,000,000 of 12%, 10-year bonds payable. On December 31, 2012, when the market interest rate is 14%, the company issues $3,200,000 of the bonds and receives cash of $2,861,000. Winner Sports amortizes bond disco
> Municipal Bank has $300,000 of 6% debenture bonds outstanding. The bonds were issued at 101 in 2012 and mature in 2032. Requirements 1. How much cash did Municipal Bank receive when it issued these bonds? 2. How much cash in total will Municipal Bank pa
> On January 31, Dogwood Logistics, Inc., issued 10-year, 9% bonds payable with a face value of $9,000,000. The bonds were issued at 93 and pay interest on January 31 and July 31. Dogwood Logistics, Inc., amortizes bond discount by the straight-line method
> Assume Jasper Electronics completed these selected transactions during June 2012. a. Sales of $2,100,000 are subject to estimated warranty cost of 6%. The estimated warranty payable at the beginning of the year was $36,000, and warranty payments for the
> An incomplete comparative income statement and balance sheet for Amherst Corporation follow: Requirement Using the ratios, common-size percentages, and trend percentages given, complete the income statement and balance sheet for Amherst for 2013. Addit
> Clark Security Systems’ revenues for 2012 totaled $25.9 million. As with most companies, Clark is a defendant in lawsuits related to its products. Note 14 of the Clark Annual Report for 2012 reported the following: 14. Contingencies The company is involv
> Green Earth Homes, Inc., builds environmentally sensitive structures. The company’s 2012 revenues totaled $2,785 million. At December 31, 2012 and 2011, the company had $643 million and $610 million in current assets, respectively. The
> At December 31, 2012, McKinley Real Estate reported a current liability for income tax payable of $210,000. During 2013, McKinley earned income of $1,600,000 before income tax. The company’s income tax rate during 2013 was 36%. Also during 2013, McKinley
> Assume that Creative Company completed the following note-payable transactions: 2012 Oct 1 Purchased delivery truck costing $84,000 by issuing a one-year, 7% note payable. Dec 31 Accrued interest on the note payable. 2013 Oct 1 Paid the note payable at m
> Penske Talent Search has an annual payroll of $190,000. In addition, the company incurs payroll tax expense of 8%. At December 31, Penske owes salaries of $8,000 and FICA and other payroll tax of $750. The company will pay these amounts early next year.
> Travis Publishing completed the following transactions for one subscriber during 2012: Oct 1 Sold a one-year subscription, collecting cash of $2,100, plus sales tax of 7%. Nov 15 Remitted (paid) the sales tax to the state of Massachusetts. Dec 31 Made th
> The accounting records of Off the Wheel Ceramics included the following balances at the end of the period: In the past, Off the Wheel’s warranty expense has been 9% of sales. During 2012, the business paid $9,000 to satisfy the warran
> Prime Nation Financial Services is considering two plans for raising $600,000 to expand operations. Plan A is to borrow at 6%, and plan B is to issue 125,000 shares of common stock at $4.80 per share. Before any new financing, Prime Nation Financial Serv
> Companies that operate in different industries may have very different financial ratio values. These differences may grow even wider when we compare companies located in different countries. Compare three leading companies on their current ratio, debt ra
> Footnote 10 of Abercrombie and Fitch Co.’s financial statements for fiscal year 2010 (January 29, 2011) contains the following information: At January 29, 2011, the Company was committed to noncancelable leases with remaining terms of 1 to 17 years. A su
> Book value per share of Buffalo Bell’s common stock outstanding at December 31, 2012, was a. 137.9. b. $35,147. c. $2.99. d. 20.1. Buffalo Bell Corporation Consolidatcd Statements of Financial Position (In millions) December 31, 2
> Lawrence Co. issued $300,000 of 6% (0.06), 10-year bonds payable on January 1, 2012, when the market interest rate was 7% (0.07). The company pays interest annually at year-end. The issue price of the bonds was $278,929. Requirement Create a spreadsheet
> On June 30, 2012, the market interest rate is 8%. First Place Sports Ltd. issues $4,000,000 of 9%, 20-year bonds payable at a price of 109.895. The bonds pay interest on June 30 and December 31. First Place Sports Ltd. Amortizes bonds by the effective-in
> Team Sports Ltd. is authorized to issue $5,000,000 of 5%, 10-year bonds payable. On December 31, 2012, when the market interest rate is 6%, the company issues $4,000,000 of the bonds and receives cash of $3,702,450. Team Sports Ltd. amortizes bond discou
> Town Bank has $100,000 of 7% debenture bonds outstanding. The bonds were issued at 105 in 2012 and mature in 2032. Requirements 1. How much cash did Town Bank receive when it issued these bonds? 2. How much cash in total will Town Bank pay the bondholde
