You just finished a telephone conversation with one of your clients, who has decided to expand her business by beginning to offer some merchandise for sale. Previously, the company had only been a consulting business, but now it has an opportunity to sell some product from a new line offered by one of its clients. The client’s question to you seems rather simple, at least in her eyes. Which inventory costing method should the client use that will give the highest amount of net income? Because the consulting part of the business has not been doing very well lately, the company wants to have a lot of net income from this new side of the business so that the income statement will look good at the end of the year. The company has heard that either the LIFO or FIFO inventory method will result in higher net income, but it is not certain which one it is. Plus, the company definitely plans to always sell the oldest merchandise first, so will this have any impact on which method it chooses? The question does seem simple, but is the answer simple? Requirement 1. Respond to your client either with a memo, a letter, or an e-mail.
> The document that identifies and explains all differences between the company’s record of cash and the bank’s record of that cash is the a. bank reconciliation. b. electronic fund transfer. c. bank collection. d. bank statement
> Bob and Larry were finishing the financial statements for their business when they saw the net income for the year was not going to be as large as they had hoped. Concerned that the bank would question the lower reported net income, Bob suggested that th
> After preparing a bank reconciliation, which reconciling items will require journal entries? Why?
> Record the following petty cash transactions of Wilson Supply in the journal; explanations are not required.
> Identify each of the following as an example of a perceived pressure (P), perceived opportunity (O), or rationalization (R) in the fraud triangle: _______ 1. Job dissatisfaction _______ 2. Greed _______ 3. “It’s for a good purpose.” _______ 4. Weak inte
> On what element of the fraud triangle do most organizations usually focus their fraud prevention efforts? a. Rationalization b. Perceived opportunity c. Perceived pressure d. All three
> Ali Jamison is the controller at Williams Supply Company, a publicly traded distributor of automotive supplies. It is the end of the third quarter, and Ali is working under a deadline to get the quarterly financial statements prepared before the board o
> Is there a distinction between personal and professional ethics? What are the implications for the study of ethics in the college classroom?
> Cunnington Furniture doesn’t expect prices to change dramatically and wants to use a method that averages price changes. 1. Which inventory method would best meet Cunnington Furniture’s goal? 2. What if Cunnington Furniture wanted to expense out the new
> Phatboy Motorcycles, Inc., a motorcycle manufacturer, included the following note in its annual report: Notes to Consolidated Financial Statements Commitments and Contingencies The Company self-insures its product liability losses in the United States u
> Bike World, Inc., wholesales a line of custom road bikes. Bike World’s inventory, as of November 30, 2016, consisted of 22 mountain bikes costing $1,650 each. Bike World’s trial balance as of November 30 appears as follows: Requirements 1. Using
> On August 31, 2016, Freemont Co., purchased $18,000 of inventory with a one-year, 8 percent note payable. Journalize the following for the company: 1. Accrual of interest expense on December 31, 2016 2. Payment of the note plus interest on August 31, 20
> Known liabilities of uncertain amounts should be a. ignored; record them when they are paid. b. estimated and accrued when they occur. c. described in the notes to the financial statements. d. reported on the income statement.
> Provide an example of a known liability, an estimated liability, and a contingent liability.
> A client of yours notified you that she just closed a deal to purchase an existing business. It’s a pretty hefty purchase. As part of the purchase of the business, she received the land, the building, all the equipment, and the entire merchandise invento
> You’ve made an appointment to take your year-end financial statements down to the bank. You know that your banker is usually concerned about two things, your net income and the amount of cash you have. You are a little concerned because you know that you
> Identify each of the following assets as a fixed asset (F) or an intangible asset (I): ______ 1. Franchises ______ 2. Vehicles ______ 3. Buildings ______ 4. Furniture ______ 5. Patents ______ 6. Copyrights ______ 7. Trademarks ______ 8. Land improvement
> Which cost is not recorded as part of the cost of a building? a. Construction materials, labor, and overhead b. Annual building maintenance c. Earthmoving for the building’s foundation d. Real estate commission paid to buy the building
> Find the Columbia Sportswear Company Annual Report located in Appendix A and go to the Notes to the Consolidated Financial Statements starting on page 663. Now access the 2014 Annual Report for Under Armour, Inc., from the Internet. For instructions on h
> This case addresses the long-term assets of Columbia Sportswear. The majority of these assets consist of property and equipment and intangible assets. In the text, you learned how most long-term tangible assets used in business are capitalized and deprec
> Northern Electric owed Estimated Warranty Payable of $1,700 at the end of 2015. During 2016, Northern Electric made sales of $180,000 and expects product warranties to cost the company 3 percent of the sales. During 2016, Northern Electric paid $4,300 fo
> What is management fraud? What is employee fraud? Give some examples of each.
> Luca Hanson owns Luca’s Limousine, which operates a fleet of limousines and shuttle buses. Upon reviewing the most recent financial statements, he became confused over the recent decline in net income. He called his accountant and asked for an explanatio
> When a company makes an expenditure, it can either capitalize or expense the cost, depending on the nature of the expenditure. What does it mean to capitalize an expenditure? What determines whether an expenditure can be capitalized?
> This problem continues our accounting for Fitness Equipment Doctor, Inc., from Chapter 7. During 2016, Fitness Equipment Doctor made the following purchases: • On March 3, Fitness Equipment Doctor, Inc., purchased equipment for $3,600 cash. The equipmen
> Let’s look at Dick’s Sporting Goods (Dicks) some more. Think about Dick’s. What assets did Dick’s need to operate? Return to Dick’s Annual Report (see the Continuing Financial Statement Analysis Problem in Chapter 2 for instructions on how to access the
> This exercise continues our accounting for Sensations Salon, Inc., from previous chapters. In this exercise, we will account for the annual depreciation expense for Sensations Salon, Inc. In the Continuing Exercise in Chapter 2, we learned that Sensation
> Refer to the preceding Small Business Analysis case. Prepare an e-mail to the owner of Hastings & Associates, Inc., explaining the situation with the returned check and the charge that the bank applied to your account for processing the returned check. A
> You’re pretty excited about your cash balance at the end of the month because this was the month you were going to take the big bonus from the business and make a down payment on a new house. You were waiting on a big check to come in from a client who h
> For each of the following, indicate whether the item is an adjustment to the bank balance or the book balance: ______ 1. Bank service charge ______ 2. Deposit in transit ______ 3. Bank collection of amount due from customer ______ 4. Interest revenue on
> The document that identifies and explains all differences between the company’s record of cash and the bank’s record of that cash is the a. bank reconciliation. b. electronic fund transfer. c. bank collection. d. bank statement
> Find the Columbia Sportswear Company Annual Report located in Appendix A and go to the Financial Statements starting on page 663. Now access the 2014 Annual Report for Under Armour, Inc., from the Internet. For instructions on how to access the report on
> What is the difference between a current liability for an uncertain amount and a contingent liability? Give an example of each and demonstrate how they differ in respect of the difference that you identified in the first part of this question.
> This case will address the accounts receivable reflected on Columbia Sportswear’s Balance sheet. We will once again refer to the annual report for Columbia Sportswear located in Appendix A in order to answer some questions related to Columbia Sportswear’
> Susan Casey is the controller of Casey’s Collectibles. The business uses the accrual method of accounting and recognizes sales revenue in the period in which the sale is made. As a result, the Accounts Receivable balance at year end was $86,370, which wa
> Which duties should be segregated in the purchasing process? Why? That is, what could go wrong if two or more of those duties are not segregated?
> In this problem, we continue our accounting for Fitness Equipment Doctor, Inc., from Chapter 5. Refer to the Continuing Problem in Chapters 4 and 5. Assume that all 15 of the treadmills Fitness Equipment Doctor, Inc., sold in July were sold on account fo
> Let’s continue our examination of Dick’s Sporting Goods (Dick’s). Return to Dick’s Annual Report (see the Continuing Financial Statement Analysis Problem in Chapter 2 for instructions on how to access the Annual Report). Now answer the following question
> In this exercise, we continue our accounting for Sensations Salon, Inc., from Chapter 5. Refer to the Continuing Exercise from Chapter 5. On June 15, Sensations Salon, Inc., sold 7 bottles of shampoo to Chelsie Hobart for $196 on account. On July 18, Sen
> Record the following petty cash transactions of Wilson Supply in the journal; explanations are not required.
> You’ve been asked by your boss to write a brief description of the control activities that should be a part of the development of a strong internal control system in your office. You know that the office is small in terms of personnel, which does create
> You’re having a tough time figuring out why your actual cash is always coming up less than the amount the general ledger says should be there. You would hate to think that any of your employees would be stealing from you because they have all been with y
> Indicate by letters the type of fraud committed: Check tampering (CT) Cash register scheme (CR) Expense scheme (E) Bribe (B) Fraudulent financial reporting (F) Here is an example: CT Employee writes a fraudulent check, making it payable to herself. ____
> Peterson purchased land having a current market value of $110,000, a building with a market value of $88,000, and equipment with a market value of $22,000. Journalize the lump-sum purchase of the three assets purchased for a total cost of $210,000 in exc
> Which of the following is necessary for fraud to occur? a. Rationalization b. Perceived opportunity c. Perceived pressure d. All three are necessary
> Find the Columbia Sportswear Company Annual Report located in Appendix A and go to the section titled “Design and Evaluation of Internal Control Over Financial Reporting” in Item 9A starting on page 694. Now access the 2014 Annual Report for Under Armour
> The annual report of Columbia Sportswear in Appendix A contains much more information than what is reported in the financial statements and related footnotes. In this case, you will explore other information presented in the annual report in order to det
> Roberto needed a summer job and was lucky enough to land a position as a ticket collector at a local amusement park. On his first day, he was assigned to work alongside Suzanne, who had worked at the park for the past two summers. Suzanne explained to Ro
> Can ethics be taught in the college classroom? Why or why not?
> It’s the end of the year, and your warehouse manager just finished taking a physical count of the inventory on hand. Because you are utilizing the perpetual inventory method with a relatively sophisticated inventory software program, you expect that the
> Hasse Landscaping would like to assign the oldest costs of inventory items to its ending inventory. Which inventory costing method should Hasse Landscaping choose?
> Find the Columbia Sportswear Company annual report located in Appendix A, and go to the financial statements starting on page 663. Now access the 2014 annual report for Under Armour, Inc., from the Internet. For instructions on how to access the report o
> This case continues our examination of the financial statements of Columbia Sportswear. In addition to the income statement (statement of operations) and the balance sheet of Columbia Sportswear in Appendix A, you will also be investigating the notes to
> Which depreciation method usually produces the most depreciation expense in the first year? a. Straight-line b. Double-declining-balance c. Units-of-production d. All produce the same amount of depreciation for the first year.
> Susan Hopkins recently went to work for RJ Enterprises as the accounting manager. At the end of the year, Bill Harrison, the CEO, called Susan into his office for a meeting. Mr. Harrison explained to Susan that RJ Enterprises was in the midst of obtainin
> This continues our accounting for Fitness Equipment Doctor, Inc. As stated in the Continuing Problem in Chapter 4, Fitness Equipment Doctor, Inc., began selling gym equipment in June. For this problem, we will focus on the purchases and sales of treadmil
> Let’s look at Dick’s Sporting Goods (Dick’s) some more. Think about Dick’s. Think about accountants reporting what Dick’s has, where it got its money, and what it has been doing to create value. Is Dick’s earning net income or loss? What resources did Di
> This exercise continues the Sensations Salon, Inc., exercise begun in Chapter 1. Consider the June transactions for Sensations Salon presented in Chapter 4. (Cost data has been removed from the sale transactions.) Requirements 1. Prepare perpetual i
> The following is selected data for Patina Industries: Requirements 1. Calculate the return on assets (ROA) and the fixed asset turnover ratio for Patina Industries for 2015 and 2016. Round your answers to two decimal places. 2. Have the ratios impro
> O’Malley Resources, Inc., balance sheet includes three assets: Natural Gas, Oil, and Coal Reserves. Suppose O’Malley Resources, Inc., paid $1,700,000 cash for the right to work a mine with an estimated 75,000 tons of coal. Assume the company paid $64,500
> The Log Cabin Cafe acquired Hungry Boy Diners. The financial records of Hungry Boy Diners included: Requirements 1. Make the journal entry to record The Log Cabin Cafe’s purchase of Hungry Boy Diners for $325,000 cash, including any goodwill. 2. How
> Ferguson Industries had a piece of equipment that cost $49,000 and had accumulated depreciation of $45,000. Requirement 1. Record the disposition of the equipment assuming the following independent situations: a. Ferguson discarded the equipment receiv
> Osborne Organic Foods, Inc., has the following information for the years ending December 31, 2016 and 2015: Requirements 1. Compute the rate of inventory turnover for Osborne Organic Foods, Inc., for the years ended December 31, 2016 and 2015. Round
> On January 4, 2016, Crux Systems, Inc., paid $281,200 for equipment used in manufacturing automotive supplies. In addition to the basic purchase price, the company paid $2,800 transportation charges; $1,100 insurance for the equipment while in transit; $
> What is depreciation, and why is it used in accounting?
> The comparative financial statements of Appleway Flowers, Inc., for 2016, 2015, and 2014 include the following selected data: Requirements 1. Compute these ratios for 2016 and 2015: a. Quick ratio b. Current ratio c. Accounts receivable turnover; as
> Casey’s Marine Supply, Inc., lost its entire inventory in a hurricane that occurred on March 31, 2016. Over the past five years, gross profit has averaged 35 percent of net sales. The company’s records reveal the following data for the month of March:
> Brown Freightway provides freight service. The company’s balance sheet includes Land, Buildings, and Motor-Carrier Equipment. Brown Freightway uses a separate accumulated depreciation account for each depreciable asset. During 2016, Brown Freightway comp
> Record the following transactions in the journal of Sounds on Wheels, Inc. Explanations are not required. Use a 360-day year for interest computations and round to the nearest dollar.
> Savemore Supply, Co., shows the following financial statement data for 2014, 2015, and 2016 Prior to issuing the 2016 statements, auditors found that the ending inventory for 2014 was overstated by $4,000 and that the ending inventory for 2016 was un
> Zenith Manufacturing incurred the following costs in acquiring land, making land improvements, and constructing and furnishing a new building. Zenith Manufacturing depreciates buildings over 35 years, land improvements over 15 years, and furniture ov
> The KJ Auto Sales, Inc., received the following notes during 2016: Requirements 1. Identifying each note by number, compute the total interest on each note over the note term using a 360-day year, and determine the due date and maturity value of eac
> Due to a nationwide recession, Computer World, Inc.’s merchandise inventory is gathering dust. It is now October 31, 2016, and the $66,800 that Freeze It Corp., paid for its ending inventory is $2,300 higher than current replacement cost. Before any adju
> The following is selected data for Armada Industries: Requirements 1. Calculate the return on assets (ROA) and the fixed asset turnover ratio for Armada Industries for 2015 and 2016. Round your answers to two decimal places. 2. Have the ratios impro
> Checker Flag Auto Parts, Inc., completed the following selected transactions during 2016: Requirements 1. Open T-accounts for Allowance for Uncollectible Accounts and Bad Debt Expense. These accounts have beginning balances of $1,100 (cr.) and 0, re
> Make the necessary journal entries arising from Greenacres Auto Center’s bank reconciliation presented next. Date each entry May 31 and include an explanation with each entry.
> Titan Truck Parts, Inc., uses the LIFO inventory method and values its inventory using the lower-of-cost-or-market (LCM) rule. Titan Truck Parts, Inc., has the following account balances at December 31, 2016, prior to releasing the financial statements f
> Touchstone Resources, Inc.’s balance sheet includes three assets: Natural Gas, Oil, and Coal Reserves. Suppose Touchstone Resources, Inc., paid $2,100,000 in cash for the right to work a mine with an estimated 100,000 tons of coal. Assume the company pai
> On August 31, Regence Restaurant Equipment, Inc., had a $9,200 debit balance in Accounts Receivable. During September, Regence Restaurant Equipment, Inc., had the following transactions: • Sales of $53,000, all on credit; ignore cost of goods sold • C
> Monitor Industries, Inc., completed the following inventory transactions during the month of March: Requirements 1. Without resorting to calculations, determine which inventory method will result in Monitor Industries, Inc., paying the lowest income
> Tico’s Restaurants acquired Dave’s Diner. The financial records of Dave’s Diner included: Requirements 1. Make the journal entry to record Tico’s Restaurants’ purchase of Dave’s Diner for $380,000 cash, including any goodwill. 2. How should Tico’s R
> The March bank statement of Sparky’s Sub Shop just arrived from Inland Bank. To prepare the bank reconciliation, you gather the following additional data: a. The following checks are outstanding on March 31: Check....................................
> Refer to the data for Star Line Equipment, Inc., in P5-48B. However, assume Star Equipment, Inc., uses the average cost method. Data from P5-48B: Star Equipment, Inc., sells hand-held engine analyzers to automotive service shops. Star Equipment, Inc., s
> Cooper Industries had a piece of equipment that cost $29,000 and had accumulated depreciation of $23,000. Requirement 1. Record the disposition of the equipment assuming the following independent situations: a. Cooper discarded the equipment, receiving
> The May cash records of Van Brunt Coffee, Inc., follow: Van Brunt Coffee, Inc.’s Cash account shows the balance of $6,191 on May 31. On May 31, Van Brunt Coffee, Inc., received the following bank statement: Additional data for the bank reconcilia
> Star Equipment, Inc., sells hand-held engine analyzers to automotive service shops. Star Equipment, Inc., started April with an inventory of 75 units that cost a total of $10,500. During the month, Star Equipment, Inc., purchased and sold merchandise on
> On its books, Nile Valley Company’s Cash account shows an ending balance of $950. The bank statement for the current period shows a $22 service charge and an NSF check for $140. A $220 deposit is in transit, and outstanding checks total $380. What is Nil
> On January 3, 2016, Grey Enterprises, Inc., paid $280,600 for equipment used in manufacturing automotive supplies. In addition to the basic purchase price, the company paid $500 transportation charges, $300 insurance for the equipment while in transit, $
> The comparative financial statements of O’Doherty’s Irish Grille for 2016, 2015, and 2014 include the following selected data: Requirements 1. Compute these ratios for 2016 and 2015: a. Quick ratio b. Current ratio c. Accounts receivable turnover; a
> Pugliese Whole Foods, Inc., has the following information for the years ending December 31, 2016 and 2015: Requirements 1. Compute the rate of inventory turnover for Pugliese Whole Foods, Inc., for the years ended December 31, 2016 and 2015. Round t
> Regal Freightway provides freight service. The company’s balance sheet includes Land, Buildings, and Motor-Carrier Equipment. Regal Freightway uses a separate accumulated depreciation account for each depreciable asset. During 2016, Regal Freightway comp
> Record the following transactions in the journal of Redmond Printing Supply, Inc. Explanations are not required. Use a 360-day year for interest computations and round to the nearest dollar.
> Fessler Enterprises, Inc., lost its entire inventory in a hurricane that occurred on May 31, 2016. Over the past five years, gross profit has averaged 39 percent of net sales. The company’s records reveal the following data for the month of May: Requ
> Arrow Manufacturing incurred the following costs in acquiring land, making land improvements, and constructing and furnishing a new building Arrow Manufacturing depreciates buildings over 40 years, land improvements over 20 years, and furniture over
> Titan Truck, Inc., received the following notes during 2016: Requirements 1. Identifying each note by number, compute the total interest on each note over the note term using a 360-day year, and determine the due date and maturity value of each note
> Build Right Supply, Co., shows the following financial statement data for 2014, 2015, and 2016. Prior to issuing the 2016 statements, auditors found the ending inventory for 2014 was understated by $1,000 and that the ending inventory for 2016 was overst
> The following is selected data for Nelson Equipment, Inc., for the current year: Requirement 1. Calculate the return on assets (ROA) and the fixed asset turnover ratio for Nelson Equipment for the current year. Round your answers to two decimal plac
> Why does the allowance method of accounting for bad debts conform to GAAP while the direct write-off method does not?
> Reliable Auto Parts, Inc., completed the following selected transactions during 2016: Requirements 1. Open T-accounts for Allowance for Uncollectible Accounts and Bad Debt Expense. These accounts have beginning balances of $2,300 (cr.) and 0, respec
> Due to a nationwide recession, Liquidation Universe, Inc.’s merchandise inventory is gathering dust. It is now November 30, 2016, and the $162,750 that Liquidation Universe, Inc., paid for its ending inventory is $3,125 higher than current replacement co
