What are three important criteria for successful business process management?
> One of the advantages of borrowing is that interest is deductible for income tax purposes. a. If a company pays 5 percent interest to borrow $500,000, but is in an income tax bracket that requires it to pay 30 percent income tax, what is the actual net-o
> Grammar, Inc., offers its full-time employees pension and other postretirement benefits, primarily health insurance. During the current year, pension benefits for the employees totaled $250,000. Other postretirement benefits totaled $140,000. The pension
> Jansen Company borrowed $12,000 on a 1-year, 5 percent note payable from the local bank on April 1. Interest was paid quarterly, and the note was repaid one year from the time the money was borrowed. Calculate the amount of cash payments Jansen was requi
> Alamo Company has sales, cost of goods sold, and average ending inventory for the current year in the following amounts: $650,000, $500,000, and $128,000, respectively. Calculate the amount of the company’s inventory turnover for the year. What is the co
> Due to ineffective controls while counting its inventory, Walker & Comer, Inc., double-counted $50,000 of inventory at the end of the current year. Before discovering this error, the company’s ending inventory was $670,000. How will correction of this er
> Marengo is a popular restaurant located in Chilton Resort. Management feels that enlarging the facility to incorporate a large outdoor seating area will enable Marengo to continue to attract existing customers as well as handle large banquet parties that
> Bring Company’s inventory is subject to shrinkage via evaporation. At the end of the current financial reporting period, the company’s inventory had a cost of $100,000. Management estimates that evaporation has resulted in a 6 percent inventory loss. Ass
> Three events pertaining to Lean Machine Co. are described as follows. a. Issued common stock for cash. b. The market value of the corporation’s stock increased. c. Declared and paid a cash dividend to stockholders. Indicate the immed
> Franklin Co. had 10 units of an inventory item on hand at the beginning of the current year, each of which had a per-unit cost of $10. During the year, 20 additional units were purchased at $11, and 25 units were sold. What is the amount of the ending in
> Murphy, Inc., purchased a new inventory item two times during the month of April, as follows. a. What is the amount of the ending inventory of this item on April 30 if the company has sold 75 units and uses the LIFO inventory method? b. How would this
> Explain why businesses normally can reduce unit costs by utilizing their facilities more intensively.
> Fox Company purchased items of inventory as follows. May 3 100 units @ $3.05 May 10 150 units @ $3.10 May 15 120 units @ $3.15 By the end of the month of May, Fox had sold 125 units. If the company uses the average-cost method of accounting for invent
> Mason Company purchased items of inventory as follows. Dec. 2 50 units @ $20 Dec. 12 12 units @ $21 Mason sold 15 units on December 20. Determine the cost of goods sold for the month under the LIFO inventory method.
> Rouse Incorporated reported sales, cost of sales, and inventory figures for last year and the current year as follows (all dollars in thousands). What is the amount of inventory turnover for each year, and in which year did Rouse manage its inventory mo
> Smalley, Inc., purchased items of inventory as follows. Smalley sold 50 units on January 28. Compute the cost of goods sold for the month under the FIFO inventory method
> On September 1, year 1, Health Wise International acquired a 6 percent, 9-month note receivable from Herbal Innovations, a credit customer, in settlement of a $22,000 account receivable. Prepare journal entries to record the following. a. The receipt of
> Following are the average accounts receivable and net sales reported recently by two large beverage companies (dollar amounts are stated in millions) a. Compute the accounts receivable turnover rate for each company (round your results to one decimal pl
> Willie Industries is evaluating two alternative investment opportunities. The controller of the company has prepared the following analysis of the two investment proposals. Items in addition to depreciation may have attributed to differences in the estim
> Ed Winslow is considering investing in a sandwich machine operation involving 50 sandwich machines located in various locations throughout the city. The machine manufacturer reports that similar sandwich machine routes have produced a sales volume rangin
> Wilson Corporation uses an income statement approach to estimate credit losses. Its gross Accounts Receivable of $5,000,000 at the beginning of the period had a net realizable value of $4,925,000. During the period, the company wrote off actual accounts
> Pacher Corporation reports the following information pertaining to its accounts receivable. The company uses a balance sheet approach to estimate credit losses. a. Record the company’s uncollectible accounts expense, assuming it has a
> Match the department on the left to the task that the department performs on the right, all of which relate to accounts receivable and cash collections. Each department should be used only once.
> Mumford Corporation invested $30,000 in marketable securities at various times during the year. On December 9, it sold some of these investments for $10,000, and on December 18, it sold more of these investments for $5,000. The securities sold on Decembe
> List and describe the four components of the cost of quality and provide examples of each.
> Franklin, Inc., accumulates large amounts of excess cash throughout the year. It typically invests these funds in marketable securities, both short term and long term. The company’s most recent financial statements revealed a net unrealized loss on marke
> The Cash account of Lycos Corporation showed a balance of $21,749 at December 31 prior to preparing a bank reconciliation. The company’s bank statement showed a balance of $22,000 at the same date. The only reconciling items consisted of: (1) a $5,000 de
> Explain why Sprint’s percentages are so much larger than Weis Markets’ percentages. Cromley Corporation reports annual sales of $1,800,000. Its accounts receivable throughout the year averaged $150,000. a. Compute the company’s accounts receivable turno
> The following percentages were computed using figures from recent annual reports of Weis Markets, a large grocery store chain, and Sprint Corporation, a provider of telecommunication services.
> The following footnote appeared in a recent financial statement of The Coca-Cola Company. We classify time deposits and other investments that are highly liquid and have maturities of three months or less at the date of purchase as cash equivalents. We m
> Shown are selected financial data for Another World and Imports, Inc., at the end of the current year. Assume that the year-end balances shown for accounts receivable and for inventory approximate the average balances of these items throughout the year.
> Marshall Technology is considering two alternative proposals for modernizing its production facilities. To provide a basis for selection, the cost accounting department has developed the following data regarding the expected annual operating results for
> Smith & Sons Inc. is a sporting goods manufacturer. The firm uses a periodic inventory system. Smith & Sons shipped $30,000 of defective goods to a retailer. The retailer and Smith & Sons agreed that the retailer would keep the goods in exchange for a $3
> Pig Inc. is a clothing retailer and it has terms from one of its vendors of 1/10, n/30. Compute the equivalent annual rate of return that Pig earns by always paying its bills within the discount period. Should Pag, Inc. establish a consistent practice of
> Fun Land Inc. is a retailer of toys and games. Fun Land’s beginning inventory is $192,000 and its purchases during the year are $600,000. Its ending inventory is $72,000. Make the closing entries necessary given that Fun Land uses a periodic inventory sy
> Yang & Min Inc. is a retailer of contemporary furniture. You are told that Yang & Min’s ending inventory is $200,000 and its cost of goods sold is $500,000. Yang & Min had $100,000 of inventory at the beginning of the year. What was the dollar amount of
> Murphy Co. is a high-end retailer of fine fashions for men. Murphy’s inventory balance at the beginning of the year is $300,000, and Murphy purchases $600,000 of goods during the year. Its inventory balance at the end of the year is $250,000. What is the
> An executive of a large American steel company put the blame for lower net income for a recent fiscal period on the “shift in product mix to a higher proportion of export sales.” Sales for the period increased slightly while net income declined by 28 per
> Home Sweet Home Inc. is a retailer of home accessories. The company’s inventory balance at the beginning of the year was $720,000; Home Sweet Home purchased $600,000 of goods during January, and sales during January were $960,000. What is the balance tha
> Alberto & Sons, Inc., a retailer of antique figurines, engages in the following transactions during October of the current year.
> The accounts receivable subsidiary ledger for Ravalli’s Lawn Care has the following customer accounts and balances at the end of the current year. What should be the Accounts Receivable balance in the general ledger? [Hint: Customer acc
> Easy Money, Inc., has the following capital structure. The number of issued and outstanding shares of both preferred and common stock have been the same for the last two years. Dividends on preferred stock are 8 percent of par value and have been paid e
> You are the assistant controller for a public company. Wall Street stock analysts are projecting an earnings per share figure of $0.25 for your company. On December 29, a large customer returns a very large shipment of your goods that were defective. You
> Toying With Nature wants to take advantage of children’s fascination with dinosaurs by adding several scale-model dinosaurs to its existing product line. Annual sales of the dinosaurs are estimated at 80,000 units at a price of $6 per u
> List three special journals often used in accounting to facilitate the recording of repetitive transactions.
> Office today is an office supply store. Office Today’s revenue in the current year is $800 million and its cost of goods sold is $640 million. Compute Office Today’s gross profit and its gross profit percentage.
> The following revenue figures were taken from Rosemont Corporation’s adjusted trial balance at the end of the following months (adjusting entries are performed monthly whereas closing entries are performed annually, on December 31). Co
> Indicate whether each of the following accounts appears in the debit column or in the credit column of an after-closing trial balance. Use the symbols D for debit column, C for credit column, and N if the account does not appear in an after-closing trial
> The following account balances were taken from Long Tail Consulting’s year-end adjusted trial balance (assume these are the company’s only temporary accounts). Prepare the company’s necessary closing
> The following account balances were taken from Hendersonville Corporation’s year-end adjusted trial balance (assume these are the company’s only temporary accounts). Prepare the company’s necessary c
> Indicate whether a debit or credit is required to close each of the following accounts. Use the symbolls D if a debit is required, C if a credit is required, and N if the account is not closed at the end of the period. a. Salary Expense b. Unexpired In
> What is a rolling budget? Why do some companies choose to use rolling budgets?
> Indicate the effect of the following errors on each of the financial statement elements described in the column headings in the following table. Use the following symbols: O = overstated, U = understated, and NE = no effect.
> Indicate in which section of the balance sheet each of the following accounts is classified. Use the symbols CA for current assets, NCA for noncurrent assets, CL for current liabilities, LTL for long-term liabilities, and SHE for stockholders’ equity. a
> On November 1 of the current year, Sunbury Corporation invested 90,000 in a new delivery truck. The truck is being depreciated at a monthly rate of $625. During the year, the company issued additional stock for $200,000 and declared dividends of $50,000.
> In anticipation of declining inventory replacement costs, the management of Computer Products Co. elects to use the FIFO inventory method rather than LIFO. Explain how this decision should affect the company’s future. a. Rate of gross profit. b. Net ca
> During the current year, the total assets of Mifflinburg Corporation decreased by $60,000 and total liabilities decreased by $300,000. The company issued $100,000 of new stock, and its net income for the year was $250,000. No other changes to stockholder
> Accountants at Warner Co. use worksheets similar to the one shown in Exhibit 5–13. In the company’s most current year-end worksheet, the amounts transferred from the adjusted trial balance columns to the balance sheet
> Alexander’s unadjusted trial balance dated December 31, year 1, reports Income Taxes Expense of $100,000, and Income Taxes Payable of $25,000. The company’s accountant estimates that income taxes expense for the entire year ended December 31, year 1, is
> Cat Fancy, Inc., has provided the following information from its most current financial statements. a. Compute the company’s net income percentage in the current year. b. Compute the company’s return on equity in the
> On February 1, Williams Storage agreed to rent Haka Manufacturing warehouse space for $4,000 per month. Haka Manufacturing paid the first three months’ rent in advance. a. Prepare the necessary adjusting entry for Haka Manufacturing on February 28, assu
> Barth’s unadjusted trial balance reports Unearned Client Revenue of $9,000 and Client Revenue Earned of $45,000. An examination of client records reveals that $4,000 of previously unearned revenue has now been earned. a. Prepare the necessary adjusting
> Mastrolia Corporation’s Retained Earnings account balance was $25,000 on January 1. During January, the company recorded revenue of $80,000, expenses of $60,000, and dividends of $5,000. The company also collected a $9,000 account receivable and paid a $
> The year-end balance sheet of Columbus Products, Inc., includes the following stockholders’ equity section (with certain details omitted). From this information, compute answers to the following questions. a. How many shares of preferr
> Define margin of safety.
> On January 2, year 1, Hill Corporation purchased equipment costing $360,000. Hill performs adjusting entries monthly. a. Record this equipment’s depreciation expense on December 31, year 6, assuming its estimated life was fifteen years on January 2, yea
> On March 1, Cyber Corporation had office supplies on hand of $2,500. During the month, Cyber purchased additional supplies costing $4,500. Approximately $3,000 of unused office supplies remain on hand at the end of the month. Prepare the necessary adjust
> Marfar Industries produces metal stamping equipment. The company expanded vertically several years ago by acquiring Bent Press Company, one of its suppliers. Marfar decided to maintain Bent’s separate identity and therefore established
> Explain why the Dividends account is closed directly to the Retained Earnings account.
> What type of accounts are referred to as permanent or real accounts? What is meant by these terms?
> Discuss the relationship among the income statement, the statement of retained earnings, and the balance sheet.
> Explain the need for subsidiary ledgers in accounting for merchandising activities.
> Discuss the relationship among the income statement, the statement of retained earnings, and the balance sheet.
> Some people think that a company’s retained earnings represent cash reserved for the payment of dividends. Are they correct? Explain.
> A portion of the stockholders’ equity section from the balance sheet of Wall and Corporation appears as follows. Notice that the company has two classes of preferred stock with different features, in addition to common stock. Assume th
> Explain briefly the items generally included in a company’s annual report. (You may use the financial statements appearing in Appendix A to support your answer.)v
> List two items often encountered in reconciling a bank statement that may cause cash per the bank statement to be larger than the balance of cash shown in the depositor’s accounting records.
> A statement of stockholders’ equity sometimes is described as an “expanded” statement of retained earnings. Why?
> Section 404 of the Sarbanes-Oxley Act (SOX) is designed to nip accounting problems in the bud, before they can blossom into fraud, by focusing on internal controls. Many companies, in complying with Section 404, have discovered—to their surprise—that rev
> In the following list, assume each transaction is independent of the others. Each of these transactions occurs in a single division of Hope stat Incorporated, a multidivision company. Each transaction may impact capital turnover, ROI, and/or residual inc
> Why are cash balances in excess of those needed to finance business operations viewed as relatively nonproductive assets? Suggest several ways in which these excess cash balances may be utilized effectively.
> What are lines of credit? From the viewpoint of a shortterm creditor, why do lines of credit increase a company’s liquidity? How are the unused portions of these lines presented in financial statements?
> What are cash equivalents? Provide two examples. Why are these items often combined with cash for the purpose of balance sheet presentation?
> Different categories of financial assets are valued differently in the balance sheet. These different valuation methods have one common goal. Explain
> What is the formula for computing interest on a note receivable, and what does each term mean?
> When Resistor Systems, Inc., was formed, the company was authorized to issue 5,000 shares of $100 par value, 8 percent cumulative preferred stock, and 100,000 shares of $2 stated value common stock. Half of the preferred stock was issued at a price of $1
> Explain how each of the following is presented in a multiple-step income statement. a. Sale of marketable securities at a loss. b. Adjusting entry to create (or increase) the allowance for doubtful accounts. c. Entry to write off an uncollectible acco
> What are the advantages to a retailer of making credit sales only to customers who use nationally recognized credit cards?
> Must companies use the same method of accounting for uncollectible accounts receivable in their financial statements and in their income tax returns? Explain
> In making the annual adjusting entry for uncollectible accounts, a company may utilize a balance sheet approach to make the estimate, or it may use an income statement approach. Explain these two alternative approaches.
> Explain the relationship between the matching principle and the need to estimate uncollectible accounts receivable.
> Hinkley Corporation recently filed the following information with the SEC regarding its executive compensation. Base Salaries: We provide competitive base salaries that allow us to attract and retain a high performing leadership team. Annual Bonus: All e
> Why is it important for management to understand cost volume-profit relationships?
> Briefly describe the flow of cash among receivables, cash, and marketable securities.
> How does a balance arise in the Purchase Discounts Lost account? Why would management be interested in monitoring the activity in this account?
> Explain the distinguishing characteristics of (a) a general journal and (b) a special journal.
> Listed are 12 technical accounting terms discussed in this chapter. Each of the following statements may (or may not) describe one of these technical terms. For each statement, indicate the term described, or answer “Noneâ€&
> Briefly contrast the accounting procedures in perpetual and periodic inventory systems.
> Briefly contrast the accounting procedures in perpetual and periodic inventory systems.
> Define the term inventory shrinkage. How is the amount of inventory shrinkage determined in a business using a perpetual inventory system, and how is this shrinkage recorded in the accounting records?
> During the current year, Green Bay Company earned a gross profit of $350,000, whereas New England Company earned a gross profit of only $280,000. Both companies had net sales of $900,000. Does this mean that Green Bay is more profitable than New England?
