Tsunami Sushi purchases $130,000 of 5-year, 7% bonds from Deep Sea Explorers on January 1. Management intends to hold the debt securities to maturity. For bonds of similar risk and maturity, the market rate is 8%. Tsunami paid $124,728 for the bonds. It receives interest semiannually on June 30 and December 31. Due to changing market conditions, the fair value of the bonds at December 31 is $124,000. Required: 1. Record Tsunami Sushi’s investment on January 1. 2. Record the interest revenue earned by Tsunami Sushi for the first six months ended June 30. 3. Record the interest revenue earned by Tsunami Sushi for the next six months ended December 31. 4. At what amount will Tsunami Sushi report its investment in the December 31 balance sheet? Why? 5.Suppose Tsunami Sushi decides on December 31 that it no longer intends to hold the debt securities until maturity and will likely sell them early next year. Record any necessary fair value adjustment.
> What are the two primary functions of financial accounting?
> What is the basic difference between financial accounting and managerial accounting?
> What is the role of the auditor in the financial reporting process?
> What was the primary reason for the establishment of the 1933 Securities Act and the 1934 Securities Exchange Act? What power does the Securities and Exchange Commission (SEC) have?
> In general terms, explain the terms U.S. GAAP and IFRS.
> Which body is primarily responsible for the establishment of GAAP in the United States? What body serves this function on an international basis?
> What is meant by GAAP? Why should companies follow GAAP in reporting to external users?
> How does financial accounting have an impact on society?
> Identify some of the people interested in making decisions about a company.
> Roseburg Corporation manufactures cardboard containers. In 2017, the company purchased several large tracts of timber for $20 million with the intention of harvesting its own timber rather than buying timber from outside suppliers. However, in 2021, Rose
> In addition to financial statements, what are some other ways to disclose financial information to external users?
> What are the three types of cash flows reported in the statement of cash flows? Give an example of each type of activity for a company like Oakley, Inc., a designer, manufacturer, and distributor of high-performance eyewear, footwear, watches, and athlet
> “The retained earnings account is a link between the income statement and the balance sheet.” Explain what this means.
> Give some examples of the basic assets and liabilities of a company like Walmart.
> What is the accounting equation? Which financial statement reports the accounting equation?
> Give some examples of the basic revenues and expenses for a company like The Walt Disney Company.
> What does it mean to say that the income statement, statement of stockholders’ equity, and statement of cash flows measure activity over an interval of time, but the balance sheet measures activity at a point in time?
> What are the four primary financial statements? What basic information is shown on each?
> What are the major advantages and disadvantages of each of the legal forms of business organizations?
> Provide the basic definition for each of the account types: assets, liabilities, stockholders’ equity, dividends, revenues, and expenses.
> Did you know that you can get lots of financial information free of charge? Go to finance.yahoo.com. Use the quote lookup located on the left side to get financial information about any publicly traded company. Required: 1. For your company of choice, ob
> Explain what it means to say that an accounting class is not the same as a math class.
> Define the four basic assumptions underlying GAAP.
> What is meant by the term cost effectiveness in financial reporting?
> What are the three components/aspects of relevance? What are the three components/aspects of faithful representation?
> Discuss the terms relevance and faithful representation as they relate to financial accounting information.
> What are some of the benefits to obtaining a degree in accounting? What is the difference between a career in public accounting and private accounting? What are some of the traditional careers of accounting graduates? What new areas are accountants expan
> What are the three primary objectives of financial reporting?
> What is the “flip side” of an investment in equity securities?
> Provide an example of an equity investment in another company undertaken for strategic purposes.
> How might the investing activity for a company that operates a ski resort vary throughout the year?
> After years of steady growth in net income, Performance Drug Company reported a preliminary net loss in 2021. The CEO, Joe Mammoth, notices the following estimates are included in reported performance: 1. Warranty expense and liability for estimated futu
> Financial information for Buckle is presented in Appendix B at the end of the book. Required: 1. For the most recent year, what amount does Buckle report for current assets? What is the ratio of current assets to total assets? 2. For the most recent year
> How can an investor benefit from an equity investment that does not pay dividends?
> Explain why a company might invest in another company.
> Investments in debt securities are classified for reporting purposes in one of three categories. Explain each of these three categories.
> When interest rates go down, what happens to the value of an investment in bonds that pay a fixed interest rate?
> If bonds are purchased at a premium, what will happen to the carrying value of the investment in bonds and the amount recorded for interest revenue over time?
> If bonds are purchased at a discount, what will happen to the carrying value of the investment in bonds and the amount recorded for interest revenue over time?
> What is the “flip side” of an investment in debt securities?
> When is it appropriate to consolidate financial statements of two companies? Discuss your answer in terms of the relation between the parent and the subsidiary.
> Discuss the meaning of consolidated financial statements.
> Explain how we report dividends received from an investment under the equity method.
> 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. Calculate the following risk ratios for both companies for th
> Under what circumstances do we use the equity method to account for an investment in stock?
> When using the fair value method, we adjust the reported amount of the investment for changes in fair value after its acquisition. How is the change in fair value reflected in the balance sheet?
> When using the fair value method, we adjust the reported amount of the investment for changes in fair value after its acquisition. How is the change in fair value reflected in the income statement?
> Discuss the difference between an unrealized holding gain and a realized gain.
> Explain how we report dividends received from an investment under the fair value method.
> Star Studios is looking to purchase a new building for its upcoming film productions. The company finds a suitable location that has a list price of $1,600,000. The seller gives Star Studios the following purchase options: 1. Pay $1,600,000 immediately.
> Woody Lightyear is considering the purchase of a toy store from Andy Enterprises. Woody expects the store will generate net cash flows (cash inflows less cash outflows) of $60,000 per year for 20 years. At the end of the 20 years, he intends to sell the
> Mary Kate, Ashley, Dakota, and Elle each want to buy a new home. Each needs to save enough to make a 25% down payment. For example, to buy a $100,000 home, a person would need to save $25,000. At the end of each year for four years, the women make the fo
> Income statement and balance sheet data for The Athletic Attic are provided below. Required: 1. Calculate the following risk ratios for 2021 and 2022: a. Receivables turnover ratio. b. Inventory turnover ratio. c. Current ratio. d. Debt to equity ratio
> Financial information for Buckle is presented in Appendix B at the end of the book. Required: 1. Calculate the following risk ratios for the year ended February 3, 2018: a. Receivables turnover ratio. b. Average collection period. c. Inventory turnover r
> Data for The Athletic Attic are provided in P12–4B. Earnings per share for the year ended December 31, 2021, are $1.36. The closing stock price on December 31, 2021, is $22.42. Required: Calculate the following profitability ratios for 2021: 1. Gross pro
> The following income statement and balance sheets for The Athletic Attic are provided. Required: Assuming that all sales were on account, calculate the following risk ratios for 2021: 1. Receivables turnover ratio. 2. Average collection period. 3. Invent
> The balance sheets for Fantasy Football for 2021 and 2020 are provided below. Required: 1. Prepare a vertical analysis of Fantasy Football’s 2021 and 2020 balance sheets. Express each amount as a percentage of total assets for that year
> The income statements for Galaxy Tennis for the years ending December 31, 2021 and 2020, are provided below. Required: 1. Complete the “Amount” and “%” columns to be used in a horizo
> Game-On Sports operates in two distinct segments: athletic equipment and accessories. The income statement for each operating segment is presented below. Required: 1. Complete the “%” columns to be used in a vertical a
> Cash flows from operating activities for both the indirect and direct methods are presented for Electronic Transformations. Required: Complete the following income statement for Electronic Transformations. Assume all accounts payable are to suppliers. [H
> Data for Virtual Gaming Systems are provided in P11–4B. Required: Prepare the statement of cash flows for Virtual Gaming Systems using the direct method. Disclose any noncash transactions in an accompanying note.
> Refer to the information provided in P11–3B for Software Associates. Required: Prepare the operating activities section of the statement of cash flows for Software Associates using the direct method.
> International Genetic Technologies (InGen) and The Resources Development Association (RDA) are companies involved in cutting-edge genetics research. Selected financial data are provided below: Required: 1. Calculate the return on assets for both companie
> The income statement, balance sheets, and additional information for Virtual Gaming Systems are provided. Required: Prepare the statement of cash flows using the indirect method. Disclose any noncash transactions in an accompanying note.
> Financial information for American Eagle is presented in Appendix A at the end of the book. Required: 1.Calculate the following risk ratios for the year ended February 3, 2018: a. Receivables turnover ratio. b. Average collection period. c. Inventory tur
> Portions of the financial statements for Software Associates are provided below. Required: Prepare the operating activities section of the statement of cash flows for Software Associates using the indirect method.
> Natalie King has completed the basic format to be used in preparing the statement of cash flows (indirect method) for CPU Hardware Designers. All amounts are in thousands (000s). Below, in random order, are line items to be included in the statement of c
> Listed below are several transactions. For each transaction, indicate by letter whether the cash effect of each transaction is reported in a statement of cash flows as an operating (O), investing (I), financing (F), or noncash (NC) activity. Also, indica
> Selected financial data for DC Menswear is provided as follows: Required: 1. Calculate the return on equity for DC Menswear. How does it compare with the return on equity for Facebook and IBM reported in the chapter? 2. Calculate the dividend yield for D
> National League Gear has two classes of stock authorized: 4%, $20 par preferred, and $5 par value common. The following transactions affect stockholders’ equity during 2021, National League’s first year of operations: February 2 Issue 1.5 million shares
> Refer to the information provided in P10–2B. Required: Taking into consideration the beginning balances on January 1, 2021 and all the transactions during 2021, respond to the following for Nautical: 1. Prepare the stockholders’ equity section of the bal
> The stockholders’ equity section of The Seventies Shop is presented here. Required: Based on the stockholders’ equity section of The Seventies Shop, answer the following questions. Remember that all amounts are present
> The Athletic Village has done very well the past year, and its stock price is now trading at $102 per share. Management is considering either a 100% stock dividend or a 2-for-1 stock split. Required: Complete the following chart comparing the effects of
> Nautical has two classes of stock authorized: $10 par preferred, and $1 par value common. As of the beginning of 2021, 125 shares of preferred stock and 3,000 shares of common stock have been issued. The following transactions affect stockholdersâ&
> Match (by letter) the following terms with their definitions. Each letter is used only once. Definitions a. A debit balance in Retained Earnings. b. Priced high in relation to current earnings as investors expect future earnings to be higher. c. Effectiv
> Income statement and balance sheet data for Great Adventures, Inc., are provided below. As you can tell from the financial statements, 2022 was an especially busy year. Tony and Suzie were able to use the money received from borrowing and the issuance of
> Selected financial data for Surf City and Paradise Falls are as follows: Required: 1. Calculate the debt to equity ratio for Surf City and Paradise Falls for the most recent year. Which company has the higher ratio? 2. Calculate the return on assets for
> Christmas Anytime issues $850,000 of 6% bonds, due in 10 years, with interest payable semiannually on June 30 and December 31 each year. Required: Calculate the issue price of a bond and complete the first three rows of an amortization schedule when 1. T
> Super Splash issues $1,000,000, 7% bonds on January 1, 2021, that mature in 15 years. The market interest rate for bonds of similar risk and maturity is 6%, and the bonds issue for $1,098,002. Interest is paid semiannually on June 30 and December 31. Req
> Temptation Vacations issues $60 million in bonds on January 1, 2021, that pay interest semiannually on June 30 and December 31. Portions of the bond amortization schedule appear below: Required: 1. Were the bonds issued at face amount, a discount, or a p
> Viking Voyager specializes in the design and production of replica Viking boats. On January 1, 2021, the company issues $3,000,000 of 9% bonds, due in 10 years, with interest payable semiannually on June 30 and December 31 each year. Required: 1. If the
> Chunky Cheese Pizza has $61 million in bonds payable. The bond agreement states that the debt to equity ratio cannot exceed 3.25. Chunky’s total assets are $201 million, and its liabilities other than the bonds payable are $91 million. The company is con
> On January 1, 2021, Monster Corporation borrowed $9 million from a local bank to construct a new highway over the next four years. The loan will be paid back in four equal installments of $2,657,053 on December 31 of each year. The payments include inter
> On January 1, 2021, Stoops Entertainment purchases a building for $610,000, paying $110,000 down and borrowing the remaining $500,000, signing a 9%, 15-year mortgage. Installment payments of $5,071.33 are due at the end of each month, with the first paym
> Selected financial data regarding current assets and current liabilities for Ferris Air and Oceanic Airlines are provided as follows: Required: 1. Calculate the current ratio for Ferris Air and Oceanic Airlines. Which company has the better current ratio
> Authors Academic Press faces three potential contingency situations, described below. Authors’ fiscal year ends December 31, 2021. Required: Determine the appropriate means of reporting each situation for the year ended December 31, 2021, and record any
> Bryan Eubank began his accounting career as an auditor for a Big 4 CPA firm. He focused on clients in the high-technology sector, becoming an expert on topics such as inventory write-downs, stock options, and business acquisitions. Impressed with his tec
> Compact Electronics is a leading manufacturer of digital camera equipment. Assume the following transactions occur during the year ended December 31, 2021. Required: Record any amounts as a result of each of these contingencies. 1. Accounts receivable we
> Logan’s Roadhouse opened a new restaurant in November. During its first two months of operation, the restaurant sold gift cards in various amounts totaling $2,300. The cards are redeemable for meals within one year of the purchase date. Gift cards totali
> Named in honor of the late Dr. F. C. “Phog” Allen, the Kansas Jayhawks’ head coach for 39 years, Allen Fieldhouse is labeled by many as one of the best places in America to watch a college basketball game. Allen Fieldhouse has a seating capacity of 16,30
> Emily Turnbull, president of Aerobic Equipment Corporation, is concerned about her employees’ well-being. The company offers its employees free medical, dental, and life insurance coverage. It also matches employee contributions to a vo
> Kashi Sales, L.L.C., produces healthy, whole-grain foods such as breakfast cereals, frozen dinners, and granola bars. Assume payroll for the month of January was $500,000 and the following withholdings, fringe benefits, and payroll taxes apply: Assume th
> Eskimo Joe’s, designer of the world’s second best-selling T-shirt (just behind Hard Rock Cafe), borrows $21 million cash on November 1, 2021. Eskimo Joe’s signs a six-month, 7% promissory note to Stillwater National Bank under a prearranged short-term li
> Listed below are several terms and phrases associated with current liabilities. Pair each item from List A (by letter) with the item from List B that is most appropriately associated with it.
> Papa’s Pizza is the market leader and Pizza Prince is an up-and-coming player in the highly competitive delivery pizza business. The companies reported the following selected financial data ($ in thousands): Required: 1. Calculate the r
> New Deli is in the process of closing its operations. It sold its three-year-old ovens to Sicily Pizza for $341,000. The ovens originally cost $455,000, had an estimated service life of 10 years, had an estimated residual value of $30,000, and were depre
> Togo’s Sandwich Shop had the following long-term asset balances as of January 1, 2021: Togo’s purchased all the assets at the beginning of 2019 (3 years ago). The building is depreciated over a 10-year service life usi
> “Why can’t we pay our shareholders a dividend?” shouts your new boss at Polar Opposites. “This income statement you prepared for me says we earned $5 million in our first year!â
> The following information relates to the intangible assets of Lettuce Express: a. On January 1, 2021, Lettuce Express completed the purchase of Farmers Produce, Inc., for $1,600,000 in cash. The fair value of the identifiable net assets of Farmers Produc
> Cheetah Copy purchased a new copy machine. The new machine cost $140,000 including installation. The company estimates the equipment will have a residual value of $35,000. Cheetah Copy also estimates it will use the machine for four years or about 8,000
