Which type of financing, debt or equity, increases the risk factor of a business? Why?
> Write a memo explaining why one company’s P/E ratio may be higher than another company’s P/E ratio.
> Lake Inc. and River, Inc. reported net incomes of $800,000 and $1,000,000, respectively, for the most recent fiscal year. Both companies had 200,000 shares of common stock issued and outstanding. The market price per share of Lake’s stock was $50, while
> Discount Drugs (one of the three largest drug makers) just reported that its Year 2 third-quarter profits are essentially the same as the Year 1 third-quarter profits. In addition to this announcement, the same day, Discount Drugs also announced that the
> On May 1, Year 1, Love Corporation declared a $50,000 cash dividend to be paid on May 31 to shareholders of record on May 15. Required: a. Record the events occurring on May 1, May 15, and May 31 in a horizontal statements model like the following one.
> What is the concept of financial leverage?
> Does depreciation expense affect net cash flow? Explain.
> What is the difference between return on investment and return on equity?
> What is the function of the stock certificate?
> What environmental factors must be considered in analyzing companies?
> What is meant by the phrase separate legal entity? To which type of business organization does it apply?
> What is the difference between par value stock and stated value stock?
> Clayton Industries has the following account balances: The company wishes to raise $40,000 in cash and is considering two financing options: Clayton can sell $40,000 of bonds payable, or it can issue additional common stock for $40,000. To help in the
> In which section of the statement of cash flows would the following transactions be reported? (a) The amount of the change in the balance of accounts receivable. (b) Cash purchase of investment securities. (c) Cash purchase of equipment. (d) Cash sale of
> What information does the times-interest-earned ratio provide?
> What is the advantage of using the direct method to present the statement of cash flows?
> Why would a company choose to distribute a stock dividend instead of a cash dividend?
> Which method of financing, debt or equity, is generally more advantageous from a tax standpoint? Why?
> Rato Co. called some bonds and had a loss on the redemption of the bonds of $2,850. How is this amount reported on the income statement?
> Why is it easier for a corporation to raise large amounts of capital than it is for a partnership?
> What is the purpose of establishing a sinking fund?
> What is the major advantage of using the indirect method to present the statement of cash flows?
> What is the function of restrictive covenants attached to bond issues?
> The following information is available for three companies: Required: a. Determine the annual before tax interest cost for each company in dollars. b. Determine the annual after tax interest cost for each company in dollars. c. Determine the annual aft
> Which type of bond, secured or unsecured, is likely to have a lower interest rate? Explain.
> Match each of the following ratios with its formula: a. Total liabilities + Total stockholders' equity 1. Price-earnings ratio 2. Dividend yleld 3. Book value per share 4. Plant assets to long-term liabilities b. Current assets + Current llablitles
> Selected data from Goode Company follow: Required: Compute the following and round computations to two decimal points: a. The accounts receivable turnover for Year 4. b. The inventory turnover for Year 4. c. The net margin for Year 3. Balance Shee
> The following data come from the financial records of Welch Corporation for Year 3: Required: How many times was interest earned in Year 3? Sales $320,000 Interest expense 9,000 36,000 Income tax Net income 99,000
> For each of the following situations, calculate the amount of bond discount or premium, if any: a. Jones Co. issued $120,000 of 6 percent bonds at 101. b. Jude, Inc. issued $80,000 of 10-year, 8 percent bonds at 98. c. James, Inc. issued $200,000 of 15-y
> In each of the following situations, state whether the bonds will sell at a premium or discount: a. Carver issued $400,000 of bonds with a stated interest rate of 7 percent. At the time of issue, the market rate of interest for similar investments was 6
> Required Indicate whether a bond will sell at a premium (P), discount (D), or face value (F) for each of the following conditions: a. ____ The stated rate of interest is less than the market rate. b. ____ The market rate of interest is equal to the state
> For each of the following situations, calculate the amount of bond discount or premium, if any: a. Gray Co. issued $80,000 of 6 percent bonds at 101¼. b. Bush, Inc. issued $200,000 of 10-year, 6 percent bonds at 97½. c. Oak, Inc. issued $100,000 of 20-ye
> In each of the following situations, state whether the bonds will sell at a premium or discount: a. Valley issued $300,000 of bonds with a stated interest rate of 7 percent. At the time of issue, the market rate of interest for similar investments was 6
> Required: Indicate whether a bond will sell at a premium (P), discount (D), or face value (F) for each of the following conditions: a. ____ The stated rate of interest is higher than the market rate. b. ____ The market rate of interest is equal to the st
> The trial balance of Pacilio Security Services, Inc. as of January 1, Year 11, had the following normal balances: During Year 11, Pacilio Security Services experienced the following transactions: 1. Paid the sales tax payable from Year 10. 2. Paid the
> On October 31, Year 4, Corona Company’s total current assets were $160,000 and its total current liabilities were $40,000. On November 1, Year 4, Corona bought manufacturing equipment for $20,000 cash. Required: a. Compute Corona’s working capital befor
> Selected financial information for Purdy Company for Year 4 follows: Assuming that the merchandise inventory buildup was relatively constant, how many times did the merchandise inventory turnover during Year 4? $3,200,000 2,100,000 Sales Cost of go
> Selected financial information for Edwards Company for Year 4 follows: Required: Assuming that the merchandise inventory buildup was relatively constant, how many times did the merchandise inventory turn over during Year 4? Sales $800,000 Cost of g
> The following data come from the financial records of Fargo Corporation for Year 3: Required: How many times was interest earned in Year 3? $640,000 6,000 12,000 Sales Interest expense Income tax expense Net Income 42,000
> On June 30, Year 3, Franza Company’s total current assets were $900,000 and its total current liabilities were $360,000. On July 1, Year 3, Franza issued a long-term note to a bank for $72,000 cash. Required: Round computations to one decimal point. a.
> Swartz Corporation wrote off a $1,600 uncollectible account receivable against the $48,000 balance in its allowance account. Required: Explain the effect of the write-off on Swartz’s current ratio.
> In Statement of Financial Accounting Standards No. 95, the Financial Accounting Standards Board (FASB) recommended but did not require that companies use the direct method. In Appendix B, Paragraphs 106–121, the FASB discussed its reasons for this recomm
> What is apparent from a horizontal presentation of financial statement information? A vertical presentation?
> Which of the following activities are financing activities? (a) Payment of accounts payable. (b) Payment of interest on bonds payable. (c) Sale of common stock. (d) Sale of preferred stock at a premium. (e) Payment of a cash dividend.
> What is the purpose of the articles of incorporation? What information do they provide?
> The trial balance of Pacilio Security Services, Inc. as of January 1, Year 10, had the following normal balances: During Year 10, Pacilio Security Services experienced the following transactions: 1. Paid the sales tax payable from Year 9. 2. Paid the b
> Forsyth Company had a beginning balance in utilities payable of $3,300 and an ending balance of $5,200. Net income amounted to $87,000. Based on this information alone, determine the amount of net cash flow from operating activities.
> Albring Company had a beginning balance in accounts receivable of $12,000 and an ending balance of $14,000. Net income amounted to $110,000. Based on this information alone, determine the amount of net cash flow from operating activities.
> What are the three categories of cash flows reported on the cash flow statement? Discuss each and give an example of an inflow and an outflow for each category.
> What are the three major forms of business organizations? Describe each.
> If a company has a tax rate of 30 percent, and interest expense was $10,000, what is the after-tax cost of the debt?
> Assuming that the selling price of the bond and the face value are the same, would the issuer of a bond prefer to make annual or semiannual interest payments? Why?
> How do accounting principles affect financial statement analysis?
> If Best Company sold office equipment that originally cost $7,500 and had $7,200 of accumulated depreciation at a $100 loss, what was the selling price for the office equipment?
> What is the meaning of each of the following terms with respect to the corporate form of organization? (a) Legal capital (b) Par value of stock (c) Stated value of stock (d) Market value of stock (e) Book value of stock (f) Authorized shares of stock (g)
> In 2012, Duke Energy, a large utility company with its headquarters in North Carolina, completed its $32 billion acquisition of Progress Energy. To get an idea of the size of this deal, in 2011 Duke Energy reported revenues of $14.5 billion. In 2012, wit
> What is the call price of a bond? Is it usually higher or lower than the face amount of the bond? Explain.
> Clover Company had a beginning balance in unearned revenue of $4,300 and an ending balance of $3,200. Net income amounted to $54,000. Based on this information alone, determine the amount of net cash flow from operating activities.
> Can a company report negative net cash flows from operating activities for the year on the statement of cash flows but still have positive net income on the income statement? Explain.
> How would Best Company report the following transactions on the statement of cash flows? (a) Purchased new equipment for $46,000 cash. (b) Sold old equipment for $8,700 cash. The equipment had a book value of $4,900.
> Which method (direct or indirect) of presenting the statement of cash flows is more intuitively logical? Why?
> What is the difference between preparing the statement of cash flows using the direct method and using the indirect method?
> What effect does income tax have on the cost of borrowing funds for a business?
> If Best Company sold land that cost $4,200 at a $500 gain, how much cash did it collect from the sale of land?
> The following information was drawn from the year-end balance sheets of Long’s Wholesale, Inc.: Additional information regarding transactions occurring during Year 2: 1. Long’s Wholesale, Inc. issued $90,000 of bonds
> The following information was drawn from the year-end balance sheets of Vigotti Company: Additional information regarding transactions occurring during Year 2: 1. Investment securities that had cost $11,300 were sold. The Year 2 income statement contai
> Presented here are selected data from the 10-K reports of four companies for their 2015 fiscal years. The four companies, in alphabetical order, are: Caterpillar, Inc., a company that manufactures heavy machinery. Oracle Corporation, a company that devel
> The following three companies issued the following bonds: 1. Carr, Inc. issued $100,000 of 8 percent, five-year bonds at 102¼ on January 1, 2016. Interest is payable annually on December 31. 2. Kim, Inc. issued $100,000 of 8 percent, five-year bonds at 9
> The following accounts and corresponding balances were drawn from Crimson Sports, Inc.’s Year 2 and Year 1 year-end balance sheets: The Year 2 income statement is shown next: Required: a. Prepare the operating activities section of
> Use the financial statements for Bluffton Company from Problem 13-17B to compute the following for Year 4. Round percentages to two decimal points. a. Current ratio. b. Quick (acid-test) ratio. c. Average days to collect accounts receivable, assuming all
> The following financial statements apply to Bedford Appliances, Inc.: Required: Calculate the following ratios for Year 4 by rounding to two decimal points: a. Working capital. b. Current ratio. c. Quick ratio. d. Accounts receivable turnover. e. Aver
> Information from Forman Company’s financial statements follows: Average number of shares outstanding was 16,000 for Year 3 and 15,000 for Year 2. Required: Compute the following ratios for Forman Company for Year 3 and Year 2 and rou
> Selected data for Hoback Company for Year 3 and additional information on industry averages follow: Required: Round computations to two decimal points. a. Calculate and compare Hoback Company’s ratios with the industry averages. b. D
> Rustin Craft discovered a piece of wet and partially burned balance sheet after his office was destroyed by fire. He could recall a current ratio of 1.75 and a debt to-assets ratio of 45 percent. Required: Complete the balance sheet by supplying the mi
> Lowery Company has a current ratio of 2:1 on June 30, Year 3. Indicate whether each of the following transactions would increase (+), decrease (−), or not affect (NA) Lowery’s current ratio and its working capital. Required: a. Issued 10-year bonds for
> Use the financial statements for Bluffton Company from Problem 13-17B to perform a vertical analysis (based on total assets, total equities, and sales) of both the balance sheets and income statements for Year 4 and Year 3. Round computations to one deci
> Bluffton Company’s stock is quoted at $16 per share at December 31, Year 4 and Year 3. Bluffton’s financial statements follow: Required: Prepare a horizontal analysis of the balance sheet and income statement for Ye
> Burton Corporation’s controller has prepared the following vertical analysis for the president: Required: Sales were $800,000 in Year 3 and $900,000 in Year 4. Convert the analysis to income statements for the two years. Year 4 Ye
> In 2016 and 2015, Sears Holding Corporation reported net losses and negative cash flows from operating activities. Using the company’s Form 10-K for the fiscal year ended January 28, 2017 (2016), complete the requirements shown in the following. The Form
> The following financial statements were drawn from the records of Boston Materials, Inc.: Additional Information 1. Sold equipment costing $48,000 with accumulated depreciation of $26,000 for $23,500 cash. 2. Paid a $50,000 cash dividend to owners. R
> An investor is trying to decide whether to purchase stock in Henderson Inc. or Glover Corporation. Glover Corporation reported annual earnings per share of $8, and the current market price of Glover stock is $64 per share. Henderson Inc. has annual earni
> The following events were experienced by Halbart Inc.: 1. Issued common stock for cash. 2. Distributed a 2-for-1 stock split on the common stock. 3. Appropriated retained earnings. 4. Issued cumulative preferred stock for cash. 5. Sold treasury stock for
> Rabern Corp. completed the following transactions in Year 1, the first year of operation: 1. Issued 15,000 shares of $10 par common stock at par. 2. Issued 5,000 shares of $50 stated value preferred stock at $52 per share. 3. Purchased 800 shares of comm
> The following information pertains to Tacoma and Olympia companies: Required: a. Compute each company’s debt-to-assets ratio, current ratio, and times interest earned (EBIT must be computed). Identify the company with the greater fina
> On January 1, Year 1, Mason Corp. sold $100,000 of its own 6 percent, 10-year bonds. Interest is payable annually on December 31. The bonds were sold to yield an effective interest rate of 5 percent. Mason Corp. uses the effective interest rate method. T
> The stockholders’ equity section of the balance sheet for Stinson Company at December 31, Year 1, is as follows: Note: The market value per share of the common stock is $40, and the market value per share of the preferred stock is $12
> Whitten Company was started when it issued bonds with $300,000 face value on January 1, Year 1. The bonds were issued for cash at 103. Whitten uses the straight-line method of amortization. They had a 15-year term to maturity and a 6 percent annual inter
> During Year 1 and Year 2, Kale Co. completed the following transactions relating to its bond issue. The company’s fiscal year ends on December 31. Year 1 Mar. 1 Issued $200,000 of eight-year, 6 percent bonds for $194,000. The semiannual cash payment fo
> White Co. was formed when it acquired cash from the issue of common stock. The company then issued bonds at a discount on January 1, Year 1. Interest is payable on December 31 with the first payment made December 31, Year 1. On January 2, Year 1, White C
> Andy and Jean Crocket are involved in divorce proceedings. When discussing a property settlement, Andy told Jean that he should take over their investment in an apartment complex because she would be unable to absorb the loss that the apartments are gene
> Dame Co. issued $250,000 of 10year, 6 percent, callable bonds on January 1, Year 1, with interest payable annually on December 31. The bonds were issued at their face amount. The bonds are callable at 101½. The fiscal year of the corporatio
> Burk Corp. completed the following transactions in Year 1, the first year of operation: 1. Issued 30,000 shares of $10 par common stock for $15 per share. 2. Issued 6,000 shares of $100 par, 5 percent, preferred stock at $101 per share. 3. Paid the annua
> On January 1, Year 1, Kramer Co. borrowed cash from First City Bank by issuing a $90,000 face-value, three-year term note that had a 7 percent annual interest rate. The note is to be repaid by making annual payments of $34,295 that include both interest
> Edgar Corporation was authorized to issue 100,000 shares of $8 par common stock and 50,000 shares of $80 par, 4 percent, cumulative preferred stock. Edgar Corporation completed the following transactions during its first two years of operation: Year 1 J
> Edwards Corporation reports the following information in its January 1, Year 1, balance sheet: During Year 1, Edwards was affected by the following accounting events: 1. Purchased 2,000 shares of treasury stock at $15 per share. 2. Reissued 1,200 share
> Tyler Corp. had the following stock issued and outstanding at January 1, Year 2: 1. 60,000 shares of no-par common stock. 2. 15,000 shares of $100 par, 4 percent, cumulative preferred stock. (Dividends are in arrears for one year, Year 1.) On February 1,
> Best Auto Parts Company was started on January 1, Year 1, when the owners invested $120,000 cash in the business. During Year 1, the company earned cash revenues of $80,000 and incurred cash expenses of $56,000. The company also paid cash distributions o
> Bill Wheeler established a partnership with June Cramer. The new company, W&C Fuels, purchased coal directly from mining companies and contracted to ship the coal via waterways to a seaport where it was delivered to ships that were owned and operated by
> The Electric Company engaged in the following transactions during Year 2. The beginning cash balance was $43,000 and the ending cash balance was $48,600. 1. Sales on account were $274,000. The beginning receivables balance was $86,000 and the ending bala
> The comparative balance sheets and an income statement for Wang Beauty Products, Inc. are shown next. Other Information 1. Purchased land for $112,000. 2. Purchased new equipment for $100,000. 3. Sold old equipment that cost $132,000 with accumulated
> The following selected information was drawn from the records of Fleming Company: Fleming is experiencing cash flow problems. Despite the fact that it reported significant increases in operating income, operating activities produced a net cash outflow.
