Theo Corporation entered into a contract with Maddon Company to sell Maddon goods for $200,000. About a week later, Maddon ordered additional goods and the two companies agreed to a $50,000 price. The stand-alone price for the additional goods is typically $40,000. The two companies agreed to modify the original contract to include the additional goods at a total price of $250,000. How should Theo account for the contract modification?
> On December 31, 2017, Fenton Company sold equipment to Denver, Inc., accepting a $275,000 noninterest-bearing note receivable in full payment on December 31, 2017. Denver, Inc., normally pays 12% for its borrowed funds. The equipment is carried in Fenton
> Blue, Inc., sells playground equipment to schools and municipalities. It mails invoices at the end of each month for all goods shipped during that month; credit terms are net 30 days. Sales and accounts receivable data for 2017, 2018, and 2019 follow: R
> Kendall Corporation designs and manufactures sports cars. During the course of its business, Kendall generates substantial receivables from its customers. On July 1, 2017, to improve its cash flow, Kendall establishes a securitization entity (SE) and (1
> Pogrund Vacation Properties sells real estate in Florida. Pogrund requires potential buyers who are interested in a property to remit a $10,000 deposit to show good faith before receiving detailed information about a property. The deposit is fully refund
> For the month of December 2017, Ranger Corporation’s records show the following information: Cash received on accounts receivable……………………………. $35,000 Cash sales ………………….………………….………………….…………………. 30,000 Accounts receivable, December 1, ………………….…………………. 80
> Wilson Corporation repairs rail cars for its clients, a process that often takes several months. As a result, the work on some contracts is done over two accounting periods. Wilson is determining whether it will be able to recognize revenue on such contr
> Why do regulators require banks and insurance companies to maintain minimum levels of investor capital? What impact does this type of regulatory requirement have on the financial statements that banks and insurance companies prepare for shareholders?
> Illinois Power & Heat just spent $5 million repairing one of its electrical generating stations that was damaged by a tornado. The loss was uninsured. Management has asked the public service commission for approval to treat the $5 million as an asset for
> Some public service commission’s let utilities include construction in progress—construction dollars spent for projects not yet completed—in their rate-making asset bases. Other states allow only completed projects to be included. Which approach favors s
> What are regulatory costs, and why are they important for understanding a company’s financial reporting choices?
> McDonald’s, the global fast-food restaurant giant, was sued in 2009 by a former employee who said she was dismissed because, as a senior director of executive compensation, she objected to a complex scheme to keep country club fees paid for a top executi
> Sunshine Groceries operates a rapidly expanding chain of retail grocery stores in Europe. The company has grown from 10 stores in 2015 to 50 stores in 2017 and plans to add at least 10 stores each year for the next three years. Top executives at the comp
> The debt covenants in TCBY’s loan agreement do not mention explicitly the accounting methods the company must use when it prepares financial statements for submission to the lender. Why don’t lenders require the use of specific accounting methods rather
> What are the advantages of loan agreements that contain covenants tied to accounting numbers? Are there any disadvantages? Explain.
> For each of the following independent scenarios, determine whether Van Allen Corporation is a principal or an agent for purposes of applying the 5-step revenue recognition model. 1. Van Allen is a broker facilitating the sale of goods and will receive a
> Krafty Kris, Inc., discovered the following errors after the 2017 financial statements were issued: a. A major supplier shipped inventory valued at $8,550 to Krafty Kris on consignment. This merchandise was mistakenly included in the inventory taken by K
> Suppose you and two friends each invested $100,000 in an oil and gas partnership. The general partner, Huge Gamble, Inc., invests no cash but makes all operating decisions for the partnership, including where and how deep to drill for oil. Drilling costs
> What is a debt covenant? Why do lenders include them in loan agreements? Why do borrowers agree to include covenants in loan agreements?
> One of the practical expedients included in ASC Topic 606 relates to retroactive application of the standard when there is variable consideration. Generally, firms must revise their estimates of the amount of revenue the firm expects to be entitled to re
> In October 2010, Moody’s Investors Services reduced the credit rating assigned to Greece’s government bonds from investment grade to a speculative (junk-level) rating. At the time, Greece was considered by many to be the epicenter of the European debt cr
> Halifax Products has a $1 million bank loan that comes due next year. Management has prepared cash flow forecasts for each of the next six quarters as shown in the table below. Planned capital expenditures are intended to replace failing manufacturing eq
> 1. Define the term quality of earnings. 2. List the techniques that management can use to improve a company’s reported earnings performance in the short run. 3. Give examples of low-quality earnings components.
> 1. Why is fair value accounting so important to companies such as News Corporation that have substantial investments in goodwill recorded on their balance sheets? 2. News Corporation uses a discounted free cash flow valuation approach when assessing good
> The price/earnings ratios of four companies from the same industry are: What factors might explain the difference in the P/E ratios of these companies? Company P/E Ratio 16.3 19.7 33.7 Fresh Market Kroger Sprouts Farmers Market Whole Foods Market 2
> The price/earnings ratios of four companies from different industries are: What factors might explain the difference in the P/E ratios of these companies? Company P/E Ratio Amazon.com 882.7 Microsoft 35.2 Toyota Motors 9.3 Whole Foods Market 21.3
> Shelter Products sells portable livestock shelters to hog producers in the Central and Midwest regions of the United States. The terms of sale require cash payment within 30 days, and most customers take full advantage of this payment option. Sales are s
> Lemon Corporation and Morley, Inc., have entered into an arrangement whereby Lemon will supply materials and 1,000 hours of its scientists’ time for a project to be undertaken at Morley’s research facility in Austin, TX. Morley will also contribute its s
> 1. What does the phrase sustainable earnings mean? What types of earnings are not sustainable? 2. What are abnormal earnings? 3. Briefly describe the key features of the abnormal earnings approach to valuation.
> The quarterly cash flows from operations for two software companies are Required: 1. Explain why Firm B has more credit risk than Firm A. 2. Suppose that Firm B’s cash flow was $200 higher each quarter (e.g., $336.7 in Q1 of 2016). Ex
> 1. What are free cash flows? 2. Explain the difference between a company’s operating cash flow and its free cash flow. 3. Briefly describe the key features of the free cash flow approach to valuation.
> On January 1, 2019, LeMoyne Construction Company signs a contract to build an office building for Franklin Corporation for $10 million. Franklin remits $1 million to LeMoyne upon signing the contract, $5 million when the foundation and all outside compon
> Selected information taken from the accounting records of Vigor Company follows: Net accounts receivable at December 31, 2016 ……………………………………$ 900,000 Net accounts receivable at December 31, 2017 ……………………………………$1,000,000 Accounts receivable turnover ………
> A comparison of 2017 to 2016 performance shows that Neir Company’s inventory turnover increased substantially although sales and inventory amounts were essentially unchanged. Which of the following statements best explains the increased inventory turnove
> Gil Corporation has current assets of $90,000 and current liabilities of $180,000. Required: Compute the effect of each of the following independent transactions on Gil’s current ratio: 1. Refinancing a $30,000 long-term mortgage with a short-term note.
> Following are income statements for Hossa Corporation for 2017 and 2016. Percentage of sales amounts are also shown for each operating expense item. Hossa’s income tax rate was 38% in 2016 and 40% in 2017. Hossa’s ma
> This exercise is built around Whole Foods Market’s financial statements from the chapter. Average common shareholders’ equity for 2012 was $3.397 billion, and a 40% income tax rate should be used as needed. Required: 1. Whole Foods earned an ROA of 9.7%
> Mentor Graphics Corporation, a supplier of electronic design automation systems, just announced its second quarter results. According to the earnings press release, the company reported “revenues of $182.6 million, non-GAAP earnings per share of $0.02, a
> Following is Crash Zone Corporation’s balance sheet at the end of 2016 and its cash flow statement for 2017. Crash zone manufactures safety equipment for race cars. Additional Information: a. During 2017, 500 shares of common stock wer
> The Hershey Co. is famous worldwide for its chocolate confections—the Hershey bar and those delightful Hershey Kisses. Tootsie Roll Industries is equally famous for its chewy Tootsie Roll and those flavorful Tootsie Roll Pops. Selected
> Serven Corporation has estimated its accrual-basis revenue and expenses for June 2017 and would like your help in estimating cash disbursements. Selected data from these estimated amounts are as follows: Sales ………………………………………………………………………………………………………$700
> The following information is available from Sand Corporation’s accounting records for the year ended December 31, 2017: Cash received from customers…………………………………… $870,000 Rent received ………………………………………………………10,000 Cash paid to suppliers and employees ……
> During 2017, Kew Company, a service organization, had $200,000 in cash sales and $3,000,000 in credit sales. The accounts receivable balances were $400,000 and $485,000 at December 31, 2016 and 2017, respectively. Required: What was Kew Company’s cash re
> Mystery Technologies, Inc., a hypothetical company, is a leading manufacturer of bar code scanners and related information technology whose stock is traded on the New York Stock Exchange. In Year 3, the SEC filed allegations that during the previous five
> Following is a list of items taken from the December 31, 2017, balance sheet of Reagan Company (amounts omitted): Accounts payable ………………………………………………………Goodwill Accrued expenses ………………………………………………………Income taxes payable Accumulated depreciation—buildings
> The preliminary draft of the balance sheet at the end of the current fiscal year for Eagle Industries follows. The statement will be incorporated into the annual report to stockholders and will present the dollar amounts at the end of both the current an
> The following information was taken from the 2017 financial statements of Zurich Corporation, a maker of fine Swiss watches: Net income …………………$(200,000) Depreciation …………………50,000 Increase (decrease) in Accounts receivable ………………… (140,000) Inventories
> The following information was taken from the 2017 financial statements of Eiger Corporation, a maker of equipment for mountain and rock climbers: Net income ……………………………………$100,000 Depreciation ……………………………………30,000 Increase (decrease) in Accounts receivab
> The following classification scheme typically is used in the preparation of a balance sheet: a. Current assets b. Investments and funds c. Property, plant, and equipment d. Intangible assets e. Other assets f. Current liabilities g. Long-term liabilities
> Riff Hospital recently treated an accident victim in the emergency room. Because the patient was unconscious when he arrived, Riff treated the patient without knowing whether he had insurance or, if he did, whether it was with an insurer with which Riff
> Theo Corporation entered into a contract with Maddon Company to sell Maddon goods for $200,000. About a week later, Maddon ordered additional goods and the two companies agreed to a $50,000 price. Then the two companies agreed, for simplicity, to add the
> Kruger Corporation sells construction equipment to a customer for $50,000. The equipment comes with a standard 2-year warranty covering any repairs that are required during that time. It does not cover routine maintenance, and the warranty is voided if t
> The following information related to Caterpillar’s inventories is taken from its 2015 annual report. Use this information in answering the questions that follow. There were no LIFO liquidations in 2014 or 2015. Assume a 35% tax rate. D.
> For several years, the Securities and Exchange Commission (SEC) has been considering whether to transition U.S. firms to International Financial Reporting Standards (IFRS) for filing public financial reports. During 2011, Matthew J. Foehr, the vice presi
> ClearOne Communications, Inc., is a provider of end-to-end video and audio conferencing services, including the manufacture and sale of video and audio conferencing products. From its inception as a manufacturer of this equipment through 2001, ClearOne s
> Baines Corporation manufactures fireplace tools and accessories. It has been prosperous since its incorporation in 1980, largely due to a small, exceptionally skilled, and highly motivated managerial staff. Baines has been able to attract and retain its
> The following information related to ExxonMobil’s inventories is taken from its 2014 annual report. 3. Miscellaneous Financial Information In 2014, 2013, and 2012, net income included gains of $187 million, $282 million, and $328 millio
> The following inventory note appears in General Electric’s Year 3 annual report. LIFO revaluations decreased $70 million in Year 3, compared with decreases of $169 million in ear 2 and $82 million in Year 1. Included in these changes
> Presented below are excerpts from the 2015 annual report of Daimler AG, a German company that manufactures luxury automobiles. Inventories are comprised as shown in table E.41. The amount of write-down of inventories to net realizable value recognized as
> Latter Corporation received an order from Murray, Inc. for electronic components. Because Murray is struggling financially, Latter called the company and said it will get ready to fulfill the order, but it will not ship the order until payment is receive
> Dale Golf Course, Inc., operates golf courses in South Carolina. A round of golf at one of Dale’s courses costs $75. Dale also sells one-year season passes, good for unlimited rounds of golf for a single golfer, for $3,000. In 2019, Dale’s first year of
> Smith, Inc., produces and sells clothing to department stores. Its supply arrangement with Leftwich Department Stores calls for Smith to purchase from Leftwich each month in-store advertising at a cost equal to 5% of the month’s sales to Leftwich. The in
> Barnard Bike Shop sells a bicycle to a customer for $600. Barnard offers to sell three tune-ups over the next three years for a total price of $150. The customer decides to purchase the tune ups and pays a total of $750. Barnard uses the adjusted market
> Barnard Bike Shop sells a bicycle to a customer for $750. The bicycle comes with free annual tune-ups for three years. The charge for tune-ups sold separately is $60. Barnard uses the residual approach. Allocate the transaction price to the performance o
> Jerry’s Jellies sells one- and two-year mail-order subscriptions for its jelly-of-the-month business. Subscriptions are collected in advance and credited to sales. An analysis of the recorded sales activity revealed the following: Wha
> On December 31, 2017, Vale Company had an unadjusted credit balance of $1,000 in its Allowance for uncollectible accounts. An analysis of Vale’s trade accounts receivable at that date revealed the following: What amount should Vale repo
> Todd Corporation wrote off $100,000 of obsolete inventory at December 31, 2017. What effect did this write-off have on the company’s December 31, 2017, current and quick ratios?
> In November and December 2017, Gee Company, a newly organized magazine publisher, received $36,000 for 1,000 three-year subscriptions at $12 per year, starting with the January 2018 issue of the magazine. Required: How much should Gee report in its 2017
> The following information was extracted from Citigroup, Inc.’s 2009 annual report. From letter to shareholders: Financial Strength While Citi started the year as a TARP institution receiving “exceptional financial ass
> During your audit of Patti Company’s ending inventory at December 31, 2017, you find the following inventory accounting errors: a. Goods in Patti’s warehouse on consignment from Valley, Inc., were included in Patti’s ending inventory. b. On December 31,
> In 2018, Ginzel Corporation agreed to provide a client with 20 detailed marketing analyses of its client’s key products for a total fee of $110,000. The fee was computed as $5,000 per report x 20 reports = $100,000, plus $10,000 to extract the necessary
> Packard, Inc., adopted the dollar-value LIFO inventory method on June 30, 2016, the end of its fiscal year. Packard’s inventory records provide the following information: Calculate the ending inventory for Packard, Inc., for 2017, 201
> Princess Retail Stores started doing business on January 1, 2017. The following data reflect its inventory purchases and sales during the year: Required: 1. Compute gross margin and cost of ending inventory using the periodic FIFO cost flow assumption.
> Jeanette Corporation’s president is in a dilemma regarding which inventory method (LIFO or FIFO) to use. The controller provides the following list of factors that should be considered before making a choice. a. Jeanette has borrowed money during the cur
> Mastrolia Manufacturing produces pacifiers. The company uses absorption costing for external reporting, but management prefers variable costing for evaluating the profitability of each model. Bonuses, which make up a significant portion of each manager&a
> Bravo Wholesalers, Inc., began its business on January 1, 2017. Information on its inventory purchases and sales during 2017 follows: Required: Assume a tax rate of 40%. 1. Compute the cost of ending inventory and cost of goods sold under each of the f
> The following information pertains to Yuji Corporation: Costs incurred during the year 2017 were as follows: Raw material purchased ……………â€&b
> 1. Refer to the facts in Problem 9-16. Repeat the requirements assuming that Jake uses the FIFO cost flow assumption. 2. Explain how the financial statements are affected when a company decides that NRV should be used for the inventory value. 3. Repeat p
> Ramps by Jake, Inc., manufactures skateboard ramps. The company uses independent sales representatives to market its products and pays a commission of 8% on each sale. Data regarding the five styles of ramps in the company’s inventory a
> Caldwell Corporation operates an ice cream processing plant and uses the FIFO inventory cost flow assumption. A partial income statement for the year ended December 31, 2017, follows: Caldwell’s physical inventory levels were virtuall
> Appearing next is information pertaining to Garrels Company’s Allowance for doubtful accounts. Examine this information and answer the following questions. Required: 1. Solve for the unknowns in the preceding schedule. (Hint: Use T-acc
> On November 1, 2019, Gerakos Corporation sold software and a six-month technical support contract to a customer for $80,000. Gerakos sells technical support for $30,000. It does not sell the software separately. Gerakos uses the residual method to alloca
> Sirotka Retail Company began doing business in 2015. The following information pertains to its first three years of operation: Assume the following: The income tax rate is 40%. Purchase and sale prices change only at the beginning of the year. Sirotk
> Don Facundo Bacardy Maso founded the original Bacardi® rum business in Cuba in 1862. The following information is excerpted from Bacardi Corporation’s annual report for the year ended December 31, Year 2. Bacardiâ€
> JKW Corporation has been selling plumbing supplies since 1981. In 2003, the company adopted the LIFO method of valuing its inventory. The company has grown steadily over the years and a layer has been added to its LIFO inventory in each of the years the
> The following is an excerpt from the financial statements of Talbot Industries: Effective September 30, 2016, the Company changed its method of accounting for inventories from the LIFO method principally to the Specific Identification method, because,
> Parque Corporation applied to Fairview Bank early in 2017 for a $400,000 five-year loan to finance plant modernization. The company proposes that the loan be unsecured and repaid from future operating cash flows. In support of the loan application, Parqu
> Keefer, Inc., began business on January 1, 2016. Information on its inventory purchases and sales during 2016 and 2017 follow: Required: 1. Calculate ending inventory, cost of goods sold, and gross margin for 2016 and 2017 under the periodic FIFO inv
> On January 1, 2017, Hillock Brewing Company sold 50,000 bottles of beer to various customers for $45,000 using credit terms of 3/10, n/30. These credit terms mean that customers receive a cash discount of 3% of invoice price for payments made within 10 d
> On January 2, 2017, Criswell Acres purchased from Mifflinburg Farm Supply a new tractor that had a cash selling price of $109,837. As payment, Criswell gave Mifflinburg Farm Supply $25,000 in cash and a $100,000, five-year note that provided for annual i
> On December 31, 2017, Roker, Inc. reported notes receivable of $63,930,000. This amount represents the present value of future cash flows (both principal and interest) discounted at a rate of 11.12% per annum. The schedule of collections of the receivabl
> The following information pertains to the financial statements of Buffalo Supply Company, a provider of plumbing fixtures to contractors in central Pennsylvania. Reconstruct all journal entries pertaining to Gross accounts receivable and Allowance for
> On November 1, 2019, Gerakos Corporation sold software and a six-month technical support contract to a customer for $80,000. Gerakos sells the same software without technical support for $60,000. It does not sell technical support separately. Gerakos use
> Several executives of Computer Associates International, including former CEO Sanjay Kumar, pleaded guilty to providing fraudulent financial statements. The scheme was built around the backdating of sales contracts to affect the results of quarterly repo
> On December 1, 2017, Eva Corporation, a mortgage bank, has the following amounts on its balance sheet (in millions): Also on December 1, 2017, Eva transfers mortgage receivables with a book value of $20,000,000 to a securitization entity (SE). The ave
> At December 31, 2016, Oettinger Corporation, a premium kitchen cabinetmaker for the home remodeling industry, reported the following accounts receivable information on its year-end balance sheet: Gross accounts receivable …â
> Avillion Corporation had a $45,000 debit balance in Accounts receivable and a $3,500 credit balance in Allowance for uncollectibles on December 31, 2017. The company prepared the following aging schedule to record the adjusting entry for bad debts on Dec
> Baer Enterprises’s balance sheet at October 31, 2017 (fiscal year-end), includes the following: Accounts receivable …………………………………………$379,000 Less: Allowance for uncollectible …………………… (33,000) Accounts receivable (net) …………………………………………$346,000 Transact
> Moto-Lite Company is an original equipment manufacturer of high-quality aircraft engines that it traditionally has sold directly to aero clubs building their own aircraft. The engine’s selling price depends on its size and horsepower; Moto-Lite’s average
> The following notes are excerpted from the financial statements of three companies: The Company and certain of its domestic subsidiaries regularly discount trade notes receivable on a full recourse basis with banks. These trade notes receivable discounte
> Mikeska Companies purchased equipment for $108,000 from Power-line Manufacturing on January 1, 2015. Mikeska paid $18,000 in cash and signed a five-year, 5% installment note for the remaining $90,000 of the purchase price. The note calls for annual payme
