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 on July 1, 20Y5, and completed the following transactions during July: a. Opened a business bank account in the name of Stanley Insurance Inc., with a deposit of $60,000 in exchange for common stock. b. Borrowed $100,000 by issuing a note payable. c. Received cash from fees earned, $30,000. d. Paid rent on office and equipment for the month, $5,000. e. Paid automobile expense for the month, $2,500, and miscellaneous expense, $1,000. f. Paid office salaries, $6,500. g. Paid interest on the note payable, $500. h. Purchased land as a future building site, paying cash of $120,000. i. Paid dividends, $3,000. Instructions: 1. Indicate the effect of each transaction and the balances after each transaction, using the integrated financial statement framework. 2. Briefly explain why the stockholders’ investments and revenues increased stockholders’ equity, while dividends and expenses decreased stockholders’ equity. 3. Prepare an income statement and statement of stockholders’ equity for July. 4. Prepare a balance sheet as of July 31, 20Y5. 5. Prepare a statement of cash flows for July.
> 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.
> Southwest Airlines Co. (LUV) provides passenger services throughout the United States, Mexico, Jamaica, The Bahamas, Aruba, and the Dominican Republic. The following operating data (in millions) were adapted from recent financial statement
> (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
> 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
> Answer each of the following independent questions concerning supplies and the adjustment for supplies. a. The balance in the supplies account, before adjustment at the end of the year, is $3,500. What is the amount of the adjustment if the amount of sup
> At the balance sheet date, a business owes a five-year mortgage note payable of $480,000, the terms of which provide for monthly payments of $8,000. Explain how the liability should be classified on the balance sheet.
> Identify each of the following as (a) a current asset or (b) property, plant, and equipment: 4. Office Equipment 5. Prepaid Insurance 6. Supplies 1. Accounts Receivable 2. Building 3. Cash
> Lowe’s Companies Inc. (LOW) operates over 1,800 home improvement retail stores and is a competitor of The Home Depot (HD). The following data (in millions) were adapted from a recent financial statement of Loweâ
> Compare the Target results in MBA 4-5 with those of Wal-Mart (WMT) shown in the chapter illustration. Comment on the differences. Data from MBA 4-5: Target Corp. (TGT) operates retail stores throughout the United States and is a major competitor of Wal-
> Caterpillar Inc. (CAT) produces and sells various types of equipment, including tractors, loaders, and mining equipment. The following data (in millions) were adapted from recent financial statements of Caterpillar. 1. Compute the gross
> Tiffany & Co. (TIF) designs and sells jewelry including rings, watches, and necklaces throughout the world. The following data (in millions) were taken from recent financial statements of Tiffany: 1. Compute the return on assets for
> ExxonMobil Corporation (XOM) explores, produces, and distributes oil and natural gas. The Coca-Cola Company (KO) produces and distributes soft drink beverages, including Coke. Wal-Mart Stores, Inc., (WMT) operates retail stores and supermarkets. 1. The
> Pfizer Inc. (PFE) discovers, produces, and distributes medicines, including Celebrex and Lipitor. Ford (F) Motor Co. develops, markets, and produces automobiles and trucks. Microsoft Corporation (MSFT) develops, produces, and distributes a variety of com
> The following data (in millions) were adapted from recent financial statements of Tootsie Roll Industries Inc. (TR): 1. What is Tootsie Roll’s percent of the cost of sales to sales? Round to one decimal place. 2. The pe
> The financial statements of The Hershey Company (HSY) are shown in Exhibits 6 through 9 of this chapter. Based upon these statements, answer the following questions. 1. What are Hershey’s sales (in millions)? 2. What is Hershey’s cost of sales (in million
> JetBlue Airways Corporation (JBLU) is a passenger airline with flights to destinations throughout the United States, the Caribbean, and Latin America. Costco (COST) operates membership retail warehouses offering a variety of products including foods, elec
> Interpublic Group of Companies Inc. (IPG) is an advertising and marketing service company that operates throughout the world. In addition, the company provides event planning, public relations, and brand management services. Twitter Inc. (TWTR) operates
> Using adjustment data listed in E4-16, indicate the effects the adjustment for estimated customer refunds and returns on the liquidity metric working capital and profitability metric gross profit percent. Indicate in parenth
> Using adjustment data listed in E4-15, indicate the effects the inventory shrinkage adjustment on the liquidity metric working capital and profitability metric gross profit percent. Data from Exercise 4-15: Intrax Inc.’s perpetual inventory records indica
> Using transactions listed in P4-2, indicate the effects of each transaction on the liquidity metric working capital and profitability metric gross profit percent. Indicate the gross profit percent for each sale (rounding to one decimal place) in parentheses
> Using transactions listed in P4-1, indicate the effects of each transaction on the liquidity metric working capital and profitability metric gross profit percent. Data from Problem 4-1: The following selected transactions were completed by Epic Co. during
> Companies with low gross profit and markup percents often have higher volumes of sales than companies with high gross profit and markup percents. 1. Comment on the preceding statement. 2. The following data (in millions) wer
> Compare the gross profit percent, average markup percent, and ratio of sales to assets for Deere & Company and Caterpillar Inc. using the results of MBA 4-7 and MBA 4-8. Comment on any differences. Data from MBA 4-7: Deere & Compa
> Target Corp. (TGT) operates retail stores throughout the United States and is a major competitor of Wal-Mart. The following data (in millions) were adapted from recent financial statements of Target. 1. Compute the gross profit percent f
> Osborn, Inc., produces cell phone equipment. Amanda Westerly, Osborn’s president, implemented a quality-improvement program that has now been in operation for 2 years. The cost report shown here has recently been issued. Required: 1. F
> The Russell Company has an extensive job-costing facility that uses a variety of metals. Consider each requirement independently. Required: 1. Job 372 uses a particular metal alloy that is not used for any other job. Assume that scrap is material in am
> Heyer Appliances assembles dishwashers at its plant in Tuscaloosa, Alabama. In February 2017, 60 circulation motors that cost $110 each (from a new supplier who subsequently went bankrupt) were defective and had to be disposed of at zero net disposal val
> Barrett Kitchens produces a variety of items in accordance with special job orders from hospitals, plant cafeterias, and university dormitories. An order for 2,100 cases of mixed vegetables costs $9 per case: direct materials, $4; direct manufacturing la
> Suppose LogicCo determines standard costs of $215 per equivalent unit for direct materials and $92 per equivalent unit for conversion costs for both beginning work in process and work done in the current period. Required: 1. Do Exercise 18-29 using
> Refer to the information in Exercise 18-29. Required: 1. Do Exercise 18-29 using the FIFO method of process costing. 2. Should LogicCo’s managers choose the weighted-average method or the FIFO method? Explain briefly. From exercise 2
> LogicCo is a fast-growing manufacturer of computer chips. Direct materials are added at the start of the production process. Conversion costs are added evenly during the process. Some units of this product are spoiled as a result of defects not detectabl
> Spheres Toys manufactures globes at its San Fernando facility. The company provides you with the following information regarding operations for April 2017: Total globes manufactured……….20,000 Globes rejected as spoiled units…….750 Total manufacturing cos
> Plastique produces parts for use in various industries. Plastique uses a job-costing system. The nature of its process is such that management expects normal spoilage at a rate of 2% of good parts. Data for last month is as follows: Production (units)………
> Required: 1. Do Exercise 18-25 using the FIFO method. 2. What are the managerial issues involved in selecting or reviewing the percentage of spoilage considered normal? How would your answer to requirement 1 differ if all spoilage were viewed as normal?
> The Reward One Company manufactures windows. Its manufacturing plant has the capacity to produce 12,000 windows each month. Current production and sales are 10,000 windows per month. The company normally charges $250 per window. Cost information for the
> LaCroix Company produces handbags from leather of moderate quality. It distributes the product through outlet stores and department store chains. At LaCroix’s facility in northeast Ohio, direct materials (primarily leather hides) are ad
> Required: For the data in Exercise 18-21, use the FIFO method to summarize the total costs to account for; calculate the cost per equivalent unit for direct materials and conversion costs; and assign costs to units completed and transferred out (includin
