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ACC 545 Final Exam 100% Correct Answer
Description:
1) A company changes from percentage-of-completion to completed-contract, which is the method used for tax purposes. The entry to record this change should include a
A. debit to Retained Earnings in the amount of the difference on prior years, net of tax.
B. debit to Loss on Long-Term Contracts in the amount of the difference on prior years, net of tax.
C. credit to Deferred Tax Liability.
D. debit to Construction in Process.
2) Which of the following is accounted for as a change in accounting principle?
A. A change from expensing immaterial expenditures to deferring and amortizing them as they become material
B. A change from the cash basis of accounting to the accrual basis of accounting
C. A change in inventory valuation from average cost to FIFO
D. A change in the estimated useful life of plant assets
3) A company changes from straight-line to an accelerated method of calculating depreciation, which will be similar to the method used for tax purposes. The entry to record this change should include a
A. debit to Deferred Tax Asset.
B. debit to Retained Earnings in the amount of the difference on prior years.
C. credit to Deferred Tax Liability.
D. credit to Accumulated Depreciation.
4) Presenting consolidated financial statements this year when statements of individual companies were presented last year is
A. an accounting change that should be reported by restating the financial statements of all prior periods presented.
B. an accounting change that should be reported prospectively.
C. NOT an accounting change.
D. a correction of an error.
5) During 2008, a construction company changed from the completed-contract method to the percentage-of-completion method for accounting purposes but not for tax purposes. The following lists include gross profit figures under both methods for the past 3 years:
Completed-Contract
Percentage-of-Completion
2006
$ 475,000
$ 800,000
2007
625,000
950,000
2008
700,000
1,050,000
$1,800,000
$2,800,000
Assuming an income tax rate of 40% for all years, the affect of this accounting change on prior periods should be reported by a credit of what?
A. $390,000 on the 2008 income statement
B. $600,000 on the 2008 income statement
C. $390,000 on the 2008 retained earnings statement
D. $600,000 on the 2008 retained earnings statement
6) On January 1, 2005, Baden Co. purchased a machine, which was its only depreciable asset, for $300,000. The machine has a 5-year life, and no salvage value. Sum-of-the-years’-digits depreciation has been used for financial statement reporting and the elective straight-line method for income tax reporting. Effective January 1, 2008, for financial statement reporting, Baden decided to change to the straight-line method for depreciation of the machine. Assume that Baden can justify the change.
Baden’s income before depreciation, before inc
Chapter 2Problems Set BP2-1B Suppose the following items are .docxwalterl4
Chapter 2
Problems: Set B
P2-1B Suppose the following items are taken from the 2014 balance sheet of Starbucks Corporation. (All dollars are in millions.)
Goodwill
$ 477
Common stock
40
Equipment
3,036
Accounts payable
391
Stock investments (long-term)
280
Accounts receivable
288
Prepaid rent
278
Debt investments (current)
157
Retained earnings
2,244
Cash
281
Notes payable (noncurrent)
550
Notes payable (current)
1,468
Unearned sales revenue (current)
297
Bonds payable
354
Inventory
692
Accumulated depreciation—equipment
145
Instructions
Prepare a classified balance sheet for Starbucks Corporation as of September 30, 2014.
P2-2B These items are taken from the financial statements of Mueller, Inc.
Prepaid insurance
$ 2,400
Equipment
30,000
Salaries and wages expense
34,000
Utilities expense
2,100
Accumulated depreciation—equipment
7,600
Accounts payable
7,200
Cash
6,100
Accounts receivable
2,900
Salaries and wages payable
3,000
Common stock
6,000
Depreciation expense
4,300
Retained earnings (beginning)
14,000
Dividends
2,600
Service revenue
51,000
Maintenance and repairs expense
2,600
Insurance expense
1,800
Instructions
Prepare an income statement, a retained earnings statement, and a classified balance sheet as of December 31, 2014.
P2-3B You are provided with the following information for Vern Corporation, effective as of its April 30, 2014, year-end.
Accounts payable
$ 3,100
Accounts receivable
10,150
Accumulated depreciation—equipment
6,600
Depreciation expense
3,200
Cash
20,955
Common stock
20,000
Dividends
2,800
Equipment
24,250
Sales revenue
20,450
Income tax expense
700
Income taxes payable
300
Interest expense
350
Interest payable
175
Notes payable (due in 2018)
4,700
Prepaid rent
380
Rent expense
660
Retained earnings, beginning
13,960
Salaries and wages expense
5,840
Instructions
(a)
Prepare an income statement and a retained earnings statement for Vern Corporation for the year ended April 30, 2014.
(b)
Prepare a classified balance sheet for Vern as of April 30, 2014.
P2-4B Comparative statement data for Omaz Company and Wise Company, two competitors, are presented below. All balance sheet data are as of December 31, 2014.
Omaz Company
Wise Company
2014
2014
Net sales
$450,000
$900,000
Cost of goods sold
225,000
450,000
Operating expenses
130,000
150,000
Interest expense
6,000
10,000
Income tax expense
15,000
75,000
Current assets
180,000
700,000
Plant assets (net)
600,000
800,000
Current liabilities
75,000
230,000
Long-term liabilities
190,000
200,000
Net cash provided by operating activities
46,000
180,000
Capital expenditures
20,000
50,000
Dividends paid
-0-
5,000
Average number of shares outstanding
200,000
500,000
Instructions
(a)
Compute the net income and earnings per share for each company for 2014.
(b)
Comment on the relative liquidity of the companies by computing working capital and the current ratio for each company for 2014.
(c)
Comment on the relative solvency of the.
ACC 545 Final Exam 100% Correct Answer
Description:
1) A company changes from percentage-of-completion to completed-contract, which is the method used for tax purposes. The entry to record this change should include a
A. debit to Retained Earnings in the amount of the difference on prior years, net of tax.
B. debit to Loss on Long-Term Contracts in the amount of the difference on prior years, net of tax.
C. credit to Deferred Tax Liability.
D. debit to Construction in Process.
2) Which of the following is accounted for as a change in accounting principle?
A. A change from expensing immaterial expenditures to deferring and amortizing them as they become material
B. A change from the cash basis of accounting to the accrual basis of accounting
C. A change in inventory valuation from average cost to FIFO
D. A change in the estimated useful life of plant assets
3) A company changes from straight-line to an accelerated method of calculating depreciation, which will be similar to the method used for tax purposes. The entry to record this change should include a
A. debit to Deferred Tax Asset.
B. debit to Retained Earnings in the amount of the difference on prior years.
C. credit to Deferred Tax Liability.
D. credit to Accumulated Depreciation.
4) Presenting consolidated financial statements this year when statements of individual companies were presented last year is
A. an accounting change that should be reported by restating the financial statements of all prior periods presented.
B. an accounting change that should be reported prospectively.
C. NOT an accounting change.
D. a correction of an error.
5) During 2008, a construction company changed from the completed-contract method to the percentage-of-completion method for accounting purposes but not for tax purposes. The following lists include gross profit figures under both methods for the past 3 years:
Completed-Contract
Percentage-of-Completion
2006
$ 475,000
$ 800,000
2007
625,000
950,000
2008
700,000
1,050,000
$1,800,000
$2,800,000
Assuming an income tax rate of 40% for all years, the affect of this accounting change on prior periods should be reported by a credit of what?
A. $390,000 on the 2008 income statement
B. $600,000 on the 2008 income statement
C. $390,000 on the 2008 retained earnings statement
D. $600,000 on the 2008 retained earnings statement
6) On January 1, 2005, Baden Co. purchased a machine, which was its only depreciable asset, for $300,000. The machine has a 5-year life, and no salvage value. Sum-of-the-years’-digits depreciation has been used for financial statement reporting and the elective straight-line method for income tax reporting. Effective January 1, 2008, for financial statement reporting, Baden decided to change to the straight-line method for depreciation of the machine. Assume that Baden can justify the change.
Baden’s income before depreciation, before inc
Chapter 2Problems Set BP2-1B Suppose the following items are .docxwalterl4
Chapter 2
Problems: Set B
P2-1B Suppose the following items are taken from the 2014 balance sheet of Starbucks Corporation. (All dollars are in millions.)
Goodwill
$ 477
Common stock
40
Equipment
3,036
Accounts payable
391
Stock investments (long-term)
280
Accounts receivable
288
Prepaid rent
278
Debt investments (current)
157
Retained earnings
2,244
Cash
281
Notes payable (noncurrent)
550
Notes payable (current)
1,468
Unearned sales revenue (current)
297
Bonds payable
354
Inventory
692
Accumulated depreciation—equipment
145
Instructions
Prepare a classified balance sheet for Starbucks Corporation as of September 30, 2014.
P2-2B These items are taken from the financial statements of Mueller, Inc.
Prepaid insurance
$ 2,400
Equipment
30,000
Salaries and wages expense
34,000
Utilities expense
2,100
Accumulated depreciation—equipment
7,600
Accounts payable
7,200
Cash
6,100
Accounts receivable
2,900
Salaries and wages payable
3,000
Common stock
6,000
Depreciation expense
4,300
Retained earnings (beginning)
14,000
Dividends
2,600
Service revenue
51,000
Maintenance and repairs expense
2,600
Insurance expense
1,800
Instructions
Prepare an income statement, a retained earnings statement, and a classified balance sheet as of December 31, 2014.
P2-3B You are provided with the following information for Vern Corporation, effective as of its April 30, 2014, year-end.
Accounts payable
$ 3,100
Accounts receivable
10,150
Accumulated depreciation—equipment
6,600
Depreciation expense
3,200
Cash
20,955
Common stock
20,000
Dividends
2,800
Equipment
24,250
Sales revenue
20,450
Income tax expense
700
Income taxes payable
300
Interest expense
350
Interest payable
175
Notes payable (due in 2018)
4,700
Prepaid rent
380
Rent expense
660
Retained earnings, beginning
13,960
Salaries and wages expense
5,840
Instructions
(a)
Prepare an income statement and a retained earnings statement for Vern Corporation for the year ended April 30, 2014.
(b)
Prepare a classified balance sheet for Vern as of April 30, 2014.
P2-4B Comparative statement data for Omaz Company and Wise Company, two competitors, are presented below. All balance sheet data are as of December 31, 2014.
Omaz Company
Wise Company
2014
2014
Net sales
$450,000
$900,000
Cost of goods sold
225,000
450,000
Operating expenses
130,000
150,000
Interest expense
6,000
10,000
Income tax expense
15,000
75,000
Current assets
180,000
700,000
Plant assets (net)
600,000
800,000
Current liabilities
75,000
230,000
Long-term liabilities
190,000
200,000
Net cash provided by operating activities
46,000
180,000
Capital expenditures
20,000
50,000
Dividends paid
-0-
5,000
Average number of shares outstanding
200,000
500,000
Instructions
(a)
Compute the net income and earnings per share for each company for 2014.
(b)
Comment on the relative liquidity of the companies by computing working capital and the current ratio for each company for 2014.
(c)
Comment on the relative solvency of the.
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Financial Reporting Problem Part I Browse the Internet to acquire a copy of the most recent annual report for a publicly traded company. Analyze the information contained in the company’s balance sheet and income statement to answer the following questions: What are the company’s total assets at the end of its most recent annual reporting period? Why is this important?
Problem 3-2 (LO 2) Simple equity method adjustments, consolidated .docxsleeperharwell
Problem 3-2 (LO 2) Simple equity method adjustments, consolidated worksheet.
On January 1, 2015, Paro Company purchases 80% of the common stock of Solar Company for $320,000. Solar has common stock, other paid-in capital in excess of par, and retained earnings of$50,000, $100,000, and $150,000, respectively. Net income and dividends for two years for Solar are as follows:
2015
2016
Net income
$60,000
$90,000
Dividends
20,000
30,000
On January 1, 2015, the only undervalued tangible assets of Solar are inventory and the building. Inventory, for which FIFO is used, is worth $10,000 more than cost. The inventory is sold in 2015. The building, which is worth $30,000 more than book value, has a remaining life of10 years, and straight-line depreciation is used. The remaining excess of cost over book value is attributed to goodwill.
Required
1. Using this information and the information in the following trial balances on December 31, 2016, prepare a value analysis and a determination and distribution of excess schedule:
Paro Company
Solar Company
Inventory, December 31
100,000
50,000
Other Current Assets
136,000
180,000
Investment in Solar Company
400,000
Land
50,000
50,000
Buildingsand Equipment
350,000
320,000
Accumulated Depreciation
(100,000)
(60,000)
Goodwill
Other Intangibles
20,000
Current Liabilities
(120,000)
(40,000)
Bonds Payable
(100,000)
Other Long-Term Liabilities
(200,000)
Common Stock—Paro Company
(200,000)
Other Paid-In Capital in Excess of Par—Paro Company
(100,000)
Retained Earnings—Paro Company
(214,000)
Common Stock—Solar Company
(50,000)
Other Paid-In Capital in Excess of Par—Solar Company
(100,000)
Retained Earnings—Solar Company
(190,000)
Net Sales
(520,000)
(450,000)
Cost of Goods Sold
300,000
260,000
Operating Expenses
120,000
100,000
Subsidiary Income
(72,000)
Dividends Declared—Paro Company
50,000
Dividends Declared—Solar Company
30,000
Totals
0
0
2. Complete a worksheet for consolidated financial statements for 2016. Include columns for eliminations and adjustments, consolidated income, NCI, controlling retained earnings, and consolidated balance sheet.
Problem 3-10 (LO3, 5) 100%, cost method worksheet, several adjustments, third year.
Refer to the preceding information for Paulcraft’s acquisition of Switzer’s common stock. Assume that Paulcraft pays $480,000 for 100% of Switzer common stock. Paulcraft uses the cost method to account for its investment in Switzer. Paulcraft and Switzer have the following trial balances on December 31, 2017 as shown on page 191.
Paulcraft
Switzer
Cash
100,000
110,000
Accounts Receivable
90,000
55,000
Inventory
120,000
86,000
Land
100,000
60,000
Investment in Switzer
480,000
Buildings
800,000
250,000
Accumulated Depreci.
Magic Blades stock has risen rapidly to $50 per share. Th.docxsmile790243
Magic Blade's stock has risen rapidly to $50 per share. The increase is due to excitement about its new knife
that uses a light beam to slice fruits and vegetables. This process enhances the final appearance and quality
of salads and fruit trays.
The board of directors is considering strategies to divide the corporate ownership into more shares of stock,
and bring about some reduction in the price per share. They are considering a stock split, small stock dividend,
or large stock dividend. The board is unsure of the accounting effects of such transactions, and has requested
information about how stockholders' equity would be impacted.
Prior to the contemplated stock transaction, equity consisted of:
Stockholders’ Equity
Common stock, $2 par value, 2,000,000 shares authorized,
500,000 shares issued and outstanding $1,000,000
Paid-in capital in excess of par 2,000,000
Retained earnings 6,000,000
Total stockholders’ equity $9,000,000
(a) Assuming the board were to declare a 2 for 1 split, how would the revised stockholders' equity
appear?
(b) Assuming the board were to declare a 15% stock dividend, how would the revised stockholders'
equity appear?
B-14.07 Stock dividends and splits
x
SPREADSHEET
TOOL:
Holding a
cell reference
constant
Mike
Highlight
Summary information for Branford Corporation's balance sheet follows:
BRANFORD CORPORATION
Balance Sheet
August 15, 20X4
Assets
Cash $ 125,000
Accounts receivable 250,000
Inventory 750,000
Property, plant, & equipment (net) 860,000
Total assets $1,985,000
Liabilities
Accounts payable $125,000
Accrued liabilities 260,000
Notes payable 290,000
Total liabilities $ 675,000
Stockholders’ equity
Common stock, $5 par $700,000
Paid-in capital in excess of par 300,000
Retained earnings 310,000
Total stockholders’ equity 1,310,000
Total liabilities and equity $1,985,000
Branford's business is growing rapidly, and the company needs to expand its manufacturing facilities. This
expansion will require the company to obtain an additional $1,000,000 in cash. The company is exploring
five alternatives to obtain the necessary capital:
Equity structure and impact I-14.01
Mike
Highlight
366 | CHAPTER 14
DEBT OPTION:
Branford is able to borrow, on a 5-year note, the full amount needed. The interest rate on
this note would be 7%, and the note would require monthly payments.
COMMON STOCK OPTION:
Branford has identified an investor who is willing to pay $1,000,000 for 40,000 newly is-
sued common shares. Common shares have been paying a dividend of $0.50 per share.
Branford anticipates that this dividend rate will be maintained.
NONCUMULATIVE PREFERRED STOCK OPTION:
Branford has identified a hedge fund that will pay $1,000,000 for 8% noncumulative
preferred stock to be issued at par.
CUMULATIVE PREFERRED STOCK OPTION:
Branford has identified an insurance company that will pay $1,000,000 for 6% cumulative
preferred ...
Exercise 1-5Suppose the following information was taken from the.docxSANSKAR20
Exercise 1-5
Suppose the following information was taken from the 2017 financial statements of pharmaceutical giant Bramble Corp. (All dollar amounts are in millions.)
Retained earnings, January 1, 2017
$46,836.3
Cost of goods sold
9,460.6
Selling and administrative expenses
8,592.7
Dividends
3,387.0
Sales revenue
38,203.8
Research and development expense
5,960.5
Income tax expense
2,691.2
After analyzing the data, prepare an income statement for the year ending December 31, 2017. (Enter amounts in millions upto 1 decimal place, e.g. 45.5 million.)
Bramble Corp.
Income Statement
(in millions)
$
$
$
SHOW LIST OF ACCOUNTS
LINK TO TEXT
After analyzing the data, prepare a retained earnings statement for the year ending December 31, 2017. (List items that increase retained earnings first. Enter amounts in millions upto 1 decimal place, e.g. 45.5 million.)
Bramble Corp.
Retained Earnings Statement
(in millions)
$
:
:
$
Exercise 1-11
Wildhorse Co. is the world’s leading producer of ready-to-eat cereal and a leading producer of grain-based convenience foods such as frozen waffles and cereal bars. Suppose the following items were taken from its 2017 income statement and balance sheet. (All dollars are in millions.)
Retained earnings
$4,800
Cost of goods sold
6,860
Selling and administrative expenses
3,640
Cash
340
Notes payable
40
Interest expense
340
Bonds payable
4,700
Inventory
740
Sales revenue
12,400
Accounts payable
1,070
Common stock
140
Income tax expense
430
In each case, identify whether the item is an asset, liability, stockholders’ equity, revenue, or expense.
Retained earnings
Cost of goods sold
Selling and administrative expenses
Cash
Notes payable
Interest expense
Bonds payable
Inventory
Sales revenue
Accounts payable
Common stock
Income tax expense
SHOW LIST OF ACCOUNTS
LINK TO TEXT
Prepare an income statement for Wildhorse Co. for the year ended December 31, 2017. (Enter amounts in millions, e.g. 45.)
Wildhorse Co.
Income Statement
(in millions)
$
$
$
Exercise 1-14
Wayne Holtz is the bookkeeper for Windsor, Inc.. Wayne has been trying to get the balance sheet of Windsor, Inc. to balance. It finally balanced, but now he’s not sure it is correct.
Windsor, Inc.
Balance Sheet
December 31, 2017
Assets
Liabilities and Stockholders’ Equity
Cash
$12,400
Accounts payable
$10,400
Supplies
15,100
Accounts receivable
(17,600
)
Equipment
34,400
Common stock
45,600
Dividends
13,600
Retained earnings
37,100
Total assets
$75,500
Total liabilities and stockholders’ equity
$75,500
Prepare a correct balance sheet. (List assets in order of liquidity.)
Windsor, Inc.
Balance Sheet
Assets
$
$
Liabilities and Stockholders' Equity
$
$
$
Exerc ...
1. Managerial accounting stresses accounting concepts and procedur.docxjackiewalcutt
1. Managerial accounting stresses accounting concepts and procedures that are relevant to preparing reports for
investors and banks.
internal users of accounting information.
shareholders and creditors.
the Securities and Exchange Commission (SEC).
2. The goal of managerial accounting is to provide information that managers need for
planning, control, and financial reporting.
control, evaluation, and financial reporting.
planning, control, and decision making.
preparing reports for external users.
3. The financial plans prepared by managerial accountants are referred to as
budgets.
financial statements.
treasurer’s reports.
controller’s opinions.
4. Performance reports often compare current performance with
a competing company’s performance.
shareholders’ expected level of performance.
industry standards.
performance in a prior period or budgeted performance.
5. Below is a performance report that compares budgeted and actual profit of Atlanta Enterprises for the month of June:
Budget
Actual
Difference
Sales
$182,000
$180,000
($2,000)
Less:
Cost of ingredients
145,000
141,000
4,000
Salaries
24,000
23,000
1,000
Controllable profit
$ 13,000
$ 16,000
$ 3,000
In evaluating the department in terms of its changes in sales and expenses, what will be most important to investigate?
Sales
Cost of ingredients
Salaries
Debtors
6. The fundamental difference between managerial and financial accounting is that
all financial accounting information is audited by Certified Public Accountants whereas managerial accounting information is audited by the IMA.
managerial accounting is concerned principally with budgets, whereas financial accounting is concerned with a wider range of the organization’s activities.
managerial accounting provides information for decision-makers within the organization, whereas financial accounting provides information for individuals and institutions external to the organization.
financial accounting information follows U.S. Generally Accepted Accounting Principles, whereas managerial accounting information generally follows rules set forth by the Institute of Management Accountants.
7. Variable cost per unit
increases when the number of units produced increases.
does not change when the number of units produced increases.
decreases when the number of units produced increases.
decreases when the number of units produced decreases.
8. Which of the following is most likely to be a fixed cost?
Cost of wheels for a lawn mower manufacturer
Rent on a factory building
Cost of labor for cashiers at a retail store
Supplies used by the housekeeping staff that cleans hotel rooms
9. Sunland’s Salsa is in the process of preparing a production cost budget for May. Actual costs in April were:
Sunland’s Salsa
Production Costs
April 2020
Production
20,000
Jars of Salsa
Ingredient cost (variable)
$12,000
Labor cost (variable)
8,400
Rent (fixed)
5,000
Depreciation (fixed)
...
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Financial Reporting Problem Part I Browse the Internet to acquire a copy of the most recent annual report for a publicly traded company. Analyze the information contained in the company’s balance sheet and income statement to answer the following questions: What are the company’s total assets at the end of its most recent annual reporting period? Why is this important?
Problem 3-2 (LO 2) Simple equity method adjustments, consolidated .docxsleeperharwell
Problem 3-2 (LO 2) Simple equity method adjustments, consolidated worksheet.
On January 1, 2015, Paro Company purchases 80% of the common stock of Solar Company for $320,000. Solar has common stock, other paid-in capital in excess of par, and retained earnings of$50,000, $100,000, and $150,000, respectively. Net income and dividends for two years for Solar are as follows:
2015
2016
Net income
$60,000
$90,000
Dividends
20,000
30,000
On January 1, 2015, the only undervalued tangible assets of Solar are inventory and the building. Inventory, for which FIFO is used, is worth $10,000 more than cost. The inventory is sold in 2015. The building, which is worth $30,000 more than book value, has a remaining life of10 years, and straight-line depreciation is used. The remaining excess of cost over book value is attributed to goodwill.
Required
1. Using this information and the information in the following trial balances on December 31, 2016, prepare a value analysis and a determination and distribution of excess schedule:
Paro Company
Solar Company
Inventory, December 31
100,000
50,000
Other Current Assets
136,000
180,000
Investment in Solar Company
400,000
Land
50,000
50,000
Buildingsand Equipment
350,000
320,000
Accumulated Depreciation
(100,000)
(60,000)
Goodwill
Other Intangibles
20,000
Current Liabilities
(120,000)
(40,000)
Bonds Payable
(100,000)
Other Long-Term Liabilities
(200,000)
Common Stock—Paro Company
(200,000)
Other Paid-In Capital in Excess of Par—Paro Company
(100,000)
Retained Earnings—Paro Company
(214,000)
Common Stock—Solar Company
(50,000)
Other Paid-In Capital in Excess of Par—Solar Company
(100,000)
Retained Earnings—Solar Company
(190,000)
Net Sales
(520,000)
(450,000)
Cost of Goods Sold
300,000
260,000
Operating Expenses
120,000
100,000
Subsidiary Income
(72,000)
Dividends Declared—Paro Company
50,000
Dividends Declared—Solar Company
30,000
Totals
0
0
2. Complete a worksheet for consolidated financial statements for 2016. Include columns for eliminations and adjustments, consolidated income, NCI, controlling retained earnings, and consolidated balance sheet.
Problem 3-10 (LO3, 5) 100%, cost method worksheet, several adjustments, third year.
Refer to the preceding information for Paulcraft’s acquisition of Switzer’s common stock. Assume that Paulcraft pays $480,000 for 100% of Switzer common stock. Paulcraft uses the cost method to account for its investment in Switzer. Paulcraft and Switzer have the following trial balances on December 31, 2017 as shown on page 191.
Paulcraft
Switzer
Cash
100,000
110,000
Accounts Receivable
90,000
55,000
Inventory
120,000
86,000
Land
100,000
60,000
Investment in Switzer
480,000
Buildings
800,000
250,000
Accumulated Depreci.
Magic Blades stock has risen rapidly to $50 per share. Th.docxsmile790243
Magic Blade's stock has risen rapidly to $50 per share. The increase is due to excitement about its new knife
that uses a light beam to slice fruits and vegetables. This process enhances the final appearance and quality
of salads and fruit trays.
The board of directors is considering strategies to divide the corporate ownership into more shares of stock,
and bring about some reduction in the price per share. They are considering a stock split, small stock dividend,
or large stock dividend. The board is unsure of the accounting effects of such transactions, and has requested
information about how stockholders' equity would be impacted.
Prior to the contemplated stock transaction, equity consisted of:
Stockholders’ Equity
Common stock, $2 par value, 2,000,000 shares authorized,
500,000 shares issued and outstanding $1,000,000
Paid-in capital in excess of par 2,000,000
Retained earnings 6,000,000
Total stockholders’ equity $9,000,000
(a) Assuming the board were to declare a 2 for 1 split, how would the revised stockholders' equity
appear?
(b) Assuming the board were to declare a 15% stock dividend, how would the revised stockholders'
equity appear?
B-14.07 Stock dividends and splits
x
SPREADSHEET
TOOL:
Holding a
cell reference
constant
Mike
Highlight
Summary information for Branford Corporation's balance sheet follows:
BRANFORD CORPORATION
Balance Sheet
August 15, 20X4
Assets
Cash $ 125,000
Accounts receivable 250,000
Inventory 750,000
Property, plant, & equipment (net) 860,000
Total assets $1,985,000
Liabilities
Accounts payable $125,000
Accrued liabilities 260,000
Notes payable 290,000
Total liabilities $ 675,000
Stockholders’ equity
Common stock, $5 par $700,000
Paid-in capital in excess of par 300,000
Retained earnings 310,000
Total stockholders’ equity 1,310,000
Total liabilities and equity $1,985,000
Branford's business is growing rapidly, and the company needs to expand its manufacturing facilities. This
expansion will require the company to obtain an additional $1,000,000 in cash. The company is exploring
five alternatives to obtain the necessary capital:
Equity structure and impact I-14.01
Mike
Highlight
366 | CHAPTER 14
DEBT OPTION:
Branford is able to borrow, on a 5-year note, the full amount needed. The interest rate on
this note would be 7%, and the note would require monthly payments.
COMMON STOCK OPTION:
Branford has identified an investor who is willing to pay $1,000,000 for 40,000 newly is-
sued common shares. Common shares have been paying a dividend of $0.50 per share.
Branford anticipates that this dividend rate will be maintained.
NONCUMULATIVE PREFERRED STOCK OPTION:
Branford has identified a hedge fund that will pay $1,000,000 for 8% noncumulative
preferred stock to be issued at par.
CUMULATIVE PREFERRED STOCK OPTION:
Branford has identified an insurance company that will pay $1,000,000 for 6% cumulative
preferred ...
Exercise 1-5Suppose the following information was taken from the.docxSANSKAR20
Exercise 1-5
Suppose the following information was taken from the 2017 financial statements of pharmaceutical giant Bramble Corp. (All dollar amounts are in millions.)
Retained earnings, January 1, 2017
$46,836.3
Cost of goods sold
9,460.6
Selling and administrative expenses
8,592.7
Dividends
3,387.0
Sales revenue
38,203.8
Research and development expense
5,960.5
Income tax expense
2,691.2
After analyzing the data, prepare an income statement for the year ending December 31, 2017. (Enter amounts in millions upto 1 decimal place, e.g. 45.5 million.)
Bramble Corp.
Income Statement
(in millions)
$
$
$
SHOW LIST OF ACCOUNTS
LINK TO TEXT
After analyzing the data, prepare a retained earnings statement for the year ending December 31, 2017. (List items that increase retained earnings first. Enter amounts in millions upto 1 decimal place, e.g. 45.5 million.)
Bramble Corp.
Retained Earnings Statement
(in millions)
$
:
:
$
Exercise 1-11
Wildhorse Co. is the world’s leading producer of ready-to-eat cereal and a leading producer of grain-based convenience foods such as frozen waffles and cereal bars. Suppose the following items were taken from its 2017 income statement and balance sheet. (All dollars are in millions.)
Retained earnings
$4,800
Cost of goods sold
6,860
Selling and administrative expenses
3,640
Cash
340
Notes payable
40
Interest expense
340
Bonds payable
4,700
Inventory
740
Sales revenue
12,400
Accounts payable
1,070
Common stock
140
Income tax expense
430
In each case, identify whether the item is an asset, liability, stockholders’ equity, revenue, or expense.
Retained earnings
Cost of goods sold
Selling and administrative expenses
Cash
Notes payable
Interest expense
Bonds payable
Inventory
Sales revenue
Accounts payable
Common stock
Income tax expense
SHOW LIST OF ACCOUNTS
LINK TO TEXT
Prepare an income statement for Wildhorse Co. for the year ended December 31, 2017. (Enter amounts in millions, e.g. 45.)
Wildhorse Co.
Income Statement
(in millions)
$
$
$
Exercise 1-14
Wayne Holtz is the bookkeeper for Windsor, Inc.. Wayne has been trying to get the balance sheet of Windsor, Inc. to balance. It finally balanced, but now he’s not sure it is correct.
Windsor, Inc.
Balance Sheet
December 31, 2017
Assets
Liabilities and Stockholders’ Equity
Cash
$12,400
Accounts payable
$10,400
Supplies
15,100
Accounts receivable
(17,600
)
Equipment
34,400
Common stock
45,600
Dividends
13,600
Retained earnings
37,100
Total assets
$75,500
Total liabilities and stockholders’ equity
$75,500
Prepare a correct balance sheet. (List assets in order of liquidity.)
Windsor, Inc.
Balance Sheet
Assets
$
$
Liabilities and Stockholders' Equity
$
$
$
Exerc ...
1. Managerial accounting stresses accounting concepts and procedur.docxjackiewalcutt
1. Managerial accounting stresses accounting concepts and procedures that are relevant to preparing reports for
investors and banks.
internal users of accounting information.
shareholders and creditors.
the Securities and Exchange Commission (SEC).
2. The goal of managerial accounting is to provide information that managers need for
planning, control, and financial reporting.
control, evaluation, and financial reporting.
planning, control, and decision making.
preparing reports for external users.
3. The financial plans prepared by managerial accountants are referred to as
budgets.
financial statements.
treasurer’s reports.
controller’s opinions.
4. Performance reports often compare current performance with
a competing company’s performance.
shareholders’ expected level of performance.
industry standards.
performance in a prior period or budgeted performance.
5. Below is a performance report that compares budgeted and actual profit of Atlanta Enterprises for the month of June:
Budget
Actual
Difference
Sales
$182,000
$180,000
($2,000)
Less:
Cost of ingredients
145,000
141,000
4,000
Salaries
24,000
23,000
1,000
Controllable profit
$ 13,000
$ 16,000
$ 3,000
In evaluating the department in terms of its changes in sales and expenses, what will be most important to investigate?
Sales
Cost of ingredients
Salaries
Debtors
6. The fundamental difference between managerial and financial accounting is that
all financial accounting information is audited by Certified Public Accountants whereas managerial accounting information is audited by the IMA.
managerial accounting is concerned principally with budgets, whereas financial accounting is concerned with a wider range of the organization’s activities.
managerial accounting provides information for decision-makers within the organization, whereas financial accounting provides information for individuals and institutions external to the organization.
financial accounting information follows U.S. Generally Accepted Accounting Principles, whereas managerial accounting information generally follows rules set forth by the Institute of Management Accountants.
7. Variable cost per unit
increases when the number of units produced increases.
does not change when the number of units produced increases.
decreases when the number of units produced increases.
decreases when the number of units produced decreases.
8. Which of the following is most likely to be a fixed cost?
Cost of wheels for a lawn mower manufacturer
Rent on a factory building
Cost of labor for cashiers at a retail store
Supplies used by the housekeeping staff that cleans hotel rooms
9. Sunland’s Salsa is in the process of preparing a production cost budget for May. Actual costs in April were:
Sunland’s Salsa
Production Costs
April 2020
Production
20,000
Jars of Salsa
Ingredient cost (variable)
$12,000
Labor cost (variable)
8,400
Rent (fixed)
5,000
Depreciation (fixed)
...
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P4–6
Finding operating and free cash flows Consider the following
balance sheets and selected data from the income statement of
Keith
Corporation.
Keith Corporation Balance Sheets
December 31 Assets 2015 2014 Cash $ 1,500 $ 1,000
Marketable securities 1,800 1,200 Accounts receivable 2,000
1,800 Inventories 2,900 2,800 $ 8,200 $ 6,800 Gross fixed
assets $29,500 $28,100 Less: Accumulated depreciation 14,700
13,100 Net fixed assets $14,800 $15,000 Total assets $23,000
$21,800 Total current assets Liabilities and stockholders’
equity Keith Corporation Balance Sheets
December 31 Assets 2015 2014 Cash $ 1,500 $ 1,000 Accounts
payable $ 1,600 $ 1,500 Notes payable 2,800 2,200 200 300 $
4,600 $ 4,000 5,000 5,000 $ 9,600 $ 9,000 $10,000 $10,000
3,400 2,800 Total stockholders’ equity $13,400 $12,800 Total
liabilities and stockholders’ equity $23,000 $21,800 Accruals
Total current liabilities
Long-term debt
Total liabilities
Common stock
Retained earnings Keith Corporation Income Statement Data
(2015) Keith Corporation Balance Sheets
December 31 Assets
2. Cash 2015 2014 $ 1,500 $ 1,000 Depreciation expense $1,600
Earnings before interest and taxes (EBIT) 2,700 Interest
expense 367 Net profits after taxes 1,400 Tax rate 40% a.
Calculate the firm’s net operating profit after taxes (NOPAT) for
the year
ended December 31, 2015, using Equation 4.1.
b. Calculate the firm’s operating cash flow (OCF) for the year
ended
December 31, 2015, using Equation 4.3. c. Calculate the firm’s
free cash flow (FCF) for the year ended December
31, 2015, using Equation 4.4.
d. Interpret, compare, and contrast your cash flow estimates in
parts b
and c.
P4–19
Integrative: Pro forma statements Red Queen Restaurants
wishes
to prepare financial plans. Use the financial statements and the
other
information provided below to prepare the financial plans.
The following financial data are also available: (1) The firm has
estimated that its sales for 2016 will be $900,000. (2) The firm
expects to pay $35,000 in cash dividends in 2016. (3) The firm
wishes to maintain a minimum cash balance of $30,000. (4)
Accounts receivable represent approximately 18% of annual
sales. (5) The firm’s ending inventory will change directly with
changes in
sales in 2016. (6) A new machine costing $42,000 will be
purchased in 2016. Total
depreciation for 2016 will be $17,000. (7) Accounts payable
will change directly in response to changes in
sales in 2016. (8) Taxes payable will equal one-fourth of the tax
3. liability on the pro
forma income statement. (9) Marketable securities, other
current liabilities, long-term debt, and
common stock will remain unchanged. a. Prepare a pro forma
income statement for the year ended December 31,
2016, using the percent-of-sales method.
b. Prepare a pro forma balance sheet dated December 31, 2016,
using the
judgmental approach.
c. Analyze these statements, and discuss the resulting external
financing
required. Red Queen Restaurants Income Statement for the
Year Ended December 31, 2015
