What is meant by the term operating cycle?
> Linley Company reports the following information (in millions) during a recent year: net sales, $11,408.5; net earnings, $264.8; total assets, ending, $4,312.6; and total assets, beginning, $4,254.3. Instructions (a) Calculate the (1) return on assets, (
> Kael Company maintains a petty cash fund for small expenditures. These transactions occurred during the month of August. Aug. 1 Established the petty cash fund by writing a check payable to the petty cash custodian for $200. 15 Replenished the petty cash
> Warwick Company hires an accounting intern who says that intangible assets should always be amortized over their legal lives. Is the intern correct? Explain.
> The financial statements of Columbia Sportswear Company are presented in Appendix B. Financial statements of VF Corporation are presented in Appendix C. Instructions (a) Based on the information contained in these financial statements, determine the foll
> Lymen International is considering a significant expansion to its product line. The sales force is excited about the opportunities that the new products will bring. The new products are a significant step up in quality above the company’
> General Motors Company has accounts receivable and notes receivable. How should the receivables be reported on the balance sheet?
> Assume that Kohl’s Department Stores installed new cash registers in its stores. How do cash registers improve internal control over cash receipts?
> The following ratios are available for Ming Inc. Instructions (a) Is Ming’s short-term liquidity improving or deteriorating in 2017? Be specifi c in your answer, referring to relevant ratios. (b) Do changes in turnover ratios affect pr
> During a recent management meeting, Bruce Dunn, director of marketing, proposed that the company begin capitalizing its marketing expenditures as goodwill. In his words, “Marketing expenditures create goodwill for the company which benefits the company f
> Mendosa Company dishonors a note at maturity. What are the options available to the lender?
> Wes Unsel is concerned with control over mail receipts at Wooden Sporting Goods. All mail receipts are opened by Mel Blount. Mel sends the checks to the accounting department, where they are stamped “For Deposit Only.” The accounting department records a
> Rigley Company expects to have a cash balance of $46,000 on January 1, 2017. These are the relevant monthly budget data for the first two months of 2017. 1. Collections from customers: January $71,000 and February $146,000. 2. Payments to suppliers: Janu
> The questions listed below are independent of one another. Instructions Provide a brief answer to each question. (a) Why should a company depreciate its buildings? (b) How can a company have a building that has a zero reported book value but substantial
> Suppose the following information was taken from the 2017 financial statements of FedEx Corporation, a major global transportation/delivery company. Instructions Answer each of the following questions. (a) Calculate the accounts receivable turnover and
> If your school has a subscription to the FASB Codification, go to http://aaahq.org/ascLogin.cfm to log in and prepare responses to the following. (a) How is cash defined in the Codification? (b) How are cash equivalents defined in the Codification? (c) W
> Len Kumar started his own consulting firm, Kumar Consulting, on June 1, 2017. The trial balance at June 30 is as follows. In addition to those accounts listed on the trial balance, the chart of accounts for Kumar also contains the following accounts: Ac
> Alliance Atlantis Communications Inc. changed its accounting policy to amortize broadcast rights over the contracted exhibition period, which is based on the estimated useful life of the program. Previously, the company amortized broadcast rights over th
> The following is a list of activities that companies perform in relation to their receivables. 1. Selling receivables to a factor. 2. Reviewing company ratings in The Dun and Bradstreet Reference Book of American Business. 3. Collecting information on co
> A new accountant at Wyne Inc. is trying to identify which of the amounts shown below should be reported as the current asset “Cash and cash equivalents” in the year-end balance sheet, as of April 30, 2017. 1. $60 of currency and coin in a locked box used
> Marsh Corporation owns a machine that is fully depreciated but is still being used. How should Marsh account for this asset and report it in the financial statements?
> On January 1, 2017, Haley Company had a balance of $360,000 of goodwill on its balance sheet that resulted from the purchase of a small business in a prior year. The goodwill had an indefinite life. During 2017, the company had the following additional t
> On December 1, 2017, Ravenwood Company had the following account balances. During December, the company completed the following transactions. Dec. 7 Received $3,600 cash from customers in payment of account (no discount allowed). 12 Purchased merchandis
> Some people argue that the internal control requirements of the Sarbanes-Oxley Act (SOX) put U.S. companies at a competitive disadvantage to companies outside the United States. Discuss the competitive implications (both pros and cons) of SOX.
> Identify which control activity is violated in each of the following situations, and explain how the situation creates an opportunity for fraud or inappropriate accounting practices. 1. Once a month, the sales department sends sales invoices to the accou
> What was Apple’s balance in cash and cash equivalents at December 31, 2014? Did it report any restricted cash? How did Apple define cash equivalents?
> Mark Coney is considering investing in Wiggles Pet Food Company. Wiggles’ net income increased considerably during the most recent year even though many other companies in the same industry reported disappointing earnings. Mark wants to know whether the
> Albert Company discovers in 2017 that its ending inventory at December 31, 2016, was $5,000 under- stated. What effect will this error have on: (a) 2016 net income, (b) 2017 net income, and (c) the combined net income for the 2 years?
> Earl Massey, director of marketing, wants to reduce the selling price of his company’s products by 15% to increase market share. He says, “I know this will reduce our gross profit rate, but the increased number of units sold will make up for the lost mar
> Match each situation with the fraud triangle factor (opportunity, financial pressure, or rationalization) that best describes it. (a) An employee’s monthly credit card payments are nearly 75% of their monthly earnings. (b) An employee earns minimum wage
> Identify the basic principles of cash management.
> How can the amount of collections from customers be determined?
> How does the average-cost method of inventory costing differ between a perpetual inventory system and a periodic inventory system?
> Hank Cook is confused about the lack of agreement between the cash balance per books and the balance per bank. Explain the causes for the lack of agreement to Hank and give an example of each cause.
> Douglas Corp. has experienced tremendous sales growth this year, but it is always short of cash. What is one explanation for this occurrence?
> Give an example of an industry that would be characterized by (a) a high asset turnover and a low profit margin, and (b) a low asset turnover and a high profit margin.
> What factors affect a company’s gross profit rate—that is, what can cause the gross profit rate to increase and what can cause it to decrease?
> What is the LIFO reserve? What are the consequences of ignoring a large LIFO reserve when analyzing a company?
> The use of a bank contributes significantly to good internal control over cash.” Is this true? Why?
> The following are the major balance sheet classifications: Current assets (CA) Current liabilities (CL) Long-term investments (LTI) Long-term liabilities (LTL) Property, plant, and equipment (PPE) Common stock (CS) Intangible assets (IA) Retained earnin
> What two ratios measure factors that affect profitability?
> Under what circumstances might inventory turnover be too high—that is, what possible negative consequences might occur?
> What is the essential feature of an electronic funds transfer (EFT) procedure?
> Tilton Company’s balance sheet shows Inventory $162,800. What additional disclosures should be made?
> What was Apple’s largest current asset, largest current liability, and largest item under “Assets” at September 27, 2014?
> What is the economic entity assumption? Give an example of its violation.
> What is meant by a concentration of credit risk?
> What types of businesses are most likely to use a perpetual inventory system.
> Why is it inappropriate for a company to include freight-out expense in the Cost of Goods Sold account?
> What merchandising account(s) will appear in the post-closing trial balance?
> To have maximum effective internal control over cash disbursements, all payments should be made by check.” Is this true? Explain.
> How might a company monitor the risk related to its accounts receivable?
> Wanda Roberts is president of Best Texts. She has no accounting background. Wanda cannot understand why fair value is not used as the basis for all accounting measurement and reporting. Discuss.
> Kathy Malone, a business major, is working on a case problem for one of her classes. In this case problem, the company needs to raise cash to market a new product it developed. Doug Price, an engineering major, takes one look at the company’s balance she
> What cost flow assumption may be used under the lower-of-cost-or-market basis of accounting for inventories?
> Sheen Company reported these income statement data for a 2-year period. Sheen Company uses a periodic inventory system. The inventories at January 1, 2016, and December 31, 2017, are correct. However, the ending inventory at December 31, 2016, is overst
> At Lazlo Wholesale Company, two mail clerks open all mail receipts. How does this strengthen internal control?
> Goodwill has been defined as the value of all favorable attributes that relate to a business enterprise. What types of attributes could result in goodwill?
> What are the steps to good receivables management?
> Your roommate believes that accounting standards are uniform throughout the world. Is your roommate correct? Explain.
> Mrs. Harcross is uncertain about how the historical cost principle applies to plant assets. Explain the principle to Mrs. Harcross.
> What title does Apple use for gross profit? By how much did its total gross profit change, and in what direction, in 2014?
> Jackson Music Center has five TVs on hand at the balance sheet date that cost $400 each. The current replacement cost is $350 per unit. Under the lower- of-cost-or-market basis of accounting for inventories, what value should Jackson report for the TVs o
> Hank Artisan is studying for the next accounting mid- term examination. What should Hank know about: (a) departing from the cost basis of accounting for inventories and (b) the meaning of “market” in the lower-of- cost-or-market method?
> In a recent annual report, Office Depot, Inc. notes that the company entered into an agreement to sell all of its credit card program receivables to financial service companies. Instructions Explain why Office Depot, a financially stable company with po
> Describe the constraint inherent in the presentation of accounting information.
> Why is the normal operating cycle for a merchandising company likely to be longer than for a service company?
> This information relates to Alfie Co. 1. On April 5, purchased merchandise from Bach Company for $27,000, terms 2/10, n/30. 2. On April 6, paid freight costs of $1,200 on merchandise purchased from Bach Company. 3. On April 7, purchased equipment on acco
> What principle(s) of internal control is (are) involved in making daily cash counts of over-the-counter receipts?
> What is the distinction between comparability and consistency?
> Identify the distinguishing features of an income statement for a merchandising company.
> What is the difference between an account receivable and a note receivable?
> In what ways does the format of a statement of financial of position under IFRS often differ from a balance sheet presented under GAAP?
> Discuss the impact the use of LIFO has on taxes paid, cash flows, and the quality of earnings ratio relative to the impact of FIFO when prices are increasing.
> Information about Mather is presented in E6-4. Additional data regarding the company’s sales of EZslide snowboards are provided below. Assume that Mather uses a perpetual inventory system. Instructions Compute ending inventory at Septem
> In its year-end earnings announcement press re- lease, Ransome Corp. announced that its earnings increased by $15 million relative to the previous year. This represented a 20% increase. Inspection of its income statement reveals that the company reported
> Robbins Inc. owns the following assets at the balance sheet date. Cash in bank—savings account $ 8,000 Cash on hand 1,100 Cash refund due from the IRS 1,000 Checking account balance 12,000 Postdated checks 500 Wha
> What are the similarities and differences between depreciation and amortization?
> Compute the missing amounts for each of the following notes. Annual Total Principal Interest Rate Time Interest (a) $30,000 $60,000 $50,000 60 days 3 years 5 months $ 270 (d) $2,500 $2,750 6% 8% (b) 11% (c)
> Merle Hawkins, the president of Pathway Company, is pleased. Pathway substantially increased its net in- come in 2017 while keeping its unit inventory relatively the same. Jon Dietz, chief accountant, cautions Merle, however. Dietz says that since Pathwa
> Oscar Geer, a mid-level product manager for Theresa’s Shoes, thinks his company should switch from LIFO to FIFO. He says, “My bonus is based on net income. If we switch it will increase net income and increase my bonus. The company would be better off an
> Inventory data for Jeters Company are presented in E6-7(given below) Instructions (a) Calculate the cost of the ending inventory and the cost of goods sold for each cost flow assumption, using a perpetual inventory system. Assume a sale of 410 units occ
> Auditors provide a type of certification of corporate financial statements. Certification is used in many other aspects of business as well. For example, it plays a critical role in the sustainability movement. The February 7, 2012, issue of the New York
> Presented below are three receivables transactions. Indicate whether these receivables are reported as accounts receivable, notes receivable, or other receivables on a balance sheet. (a) Advanced $10,000 to an employee. (b) Received a promissory note of
> Lance, Art, and Wayne have joined together to open a law practice but are struggling to manage their cash flow. They haven’t yet built up sufficient clientele and revenues to support their legal practice’s ongoing costs. Initial costs, such as advertisin
> (a) What is the primary objective of financial reporting? (b) Identify the characteristics of useful accounting information.
> What does Apple use as the estimated useful life on its buildings? On its machinery and equipment? (Hint: You will need to find the notes to Apple’s financial statements online. See the directions for finding the notes in Appendix A at the end of the tex
> How may the maturity date of a promissory note be stated?
> Discuss the human resources department’s involvement in internal controls.
> Below is a series of cost of goods sold sections for companies B, M, O, and S. Instructions Fill in the lettered blanks to complete the cost of goods sold sections. B M S Beginning inventory Purchases $ 250 1,500 $ 120 1,080 (d) $ 700 (g) 290 $ Purc
> Mai Company has always provided its customers with payment terms of 1/10, n/30. Members of its sale force have commented that competitors are offering customers 2/10, n/45. Explain what these terms mean, and discuss the implications to Mai of switching i
> Mamosa Corporation has been using the FIFO cost flow method during a prolonged period of inflation. During the same time period, Mamosa has been paying out all of its net income as dividends. What adverse effects may result from this policy?
> Deere & Company is a global manufacturer and distributor of agricultural, construction, and forestry equipment. Suppose it reported the following information in its 2017 annual report. Instructions (a) Compute Deere’s inventory tur
> Caterpillar publishes an annual Sustainability Report to explain its position on sustainability, describe its goals, and report on its achievements. The report can be found at http://www.caterpillar.com/sustainability/sustainability-report. Instructions
> A local bank reported that it lost $150,000 as the result of employee fraud. Ray Fairburn is not clear on what is meant by “employee fraud.” Explain the meaning of fraud to Ray and give an example of fraud that might occur at a bank.
> Lopez Co. had three major business transactions during 2017. (a) Reported at its fair value of $260,000 merchandise inventory with a cost of $208,000. (b) The president of Lopez Co., Victor Lopez, purchased a truck for personal use and charged it to his
> If your school has a subscription to the FASB Codification, go to http://aaahq.org/ascLogin.cfm to log in and prepare responses to the following. Instructions (a) Access the glossary (“Master Glossary”) at the FASB Codification website to answer the foll
> Spahn Company has these cash balances: cash in bank $12,742, payroll bank account $6,000, and plant expansion fund cash $25,000. Explain how each balance should be reported on the balance sheet.
> Presented below are the assumptions and principles discussed in this chapter. 1. Full disclosure principle 2. Going concern assumption 3. Monetary unit assumption 4. Periodicity assumption 5. Historical cost principle 6. Economic entity assumption Instru
> (a) What are generally accepted accounting principles (GAAP)? (b) What body provides authoritative support for GAAP?
> If your school has a subscription to the FASB Codification, go to http://aaahq.org/ascLogin.cfm to log in and prepare responses to the following. (a) The primary basis for accounting for inventories is cost. How is cost defined in the Codification? (b) W
