“A company’s net income appears directly on the income statement and the retained earnings statement, and it is included indirectly in the company’s balance sheet.” Do you agree? Explain.
> The records of Melmann Company include the following accounts. Explain why each account may require adjustment. (a) Prepaid Insurance. (c) Unearned Service Revenue. (b) Depreciation Expense. (d) Interest Payable.
> Transactions that affect earnings do not necessarily affect cash. Identify the effect, if any, that each of the following transactions would have upon cash and net income. The first transaction has been completed as an example. Purchased $100 of supplie
> During 2017, Rostock Company entered into the following transactions. 1. Purchased equipment for $286,176 cash. 2. Issued common stock to investors for $137,590 cash. 3. Purchased inventory of $68,480 on account. Using the following tabular analysis, sho
> During 2017, Manion Corp. entered into the following transactions. 1. Borrowed $60,000 by issuing a note. 2. Paid $9,000 cash dividend to stockholders. 3. Received $13,000 cash from a previously billed customer for services performed. 4. Purchased suppli
> Presented below are three transactions. Mark each transaction as affecting common stock (C), dividends (D), revenue (R), expense (E), or not affecting stockholders’ equity (NSE). ______ (a) Received cash for services performed. ______ (b) Paid cash to pu
> Are the following events recorded in the accounting records? Explain your answer in each case. (a) A major stockholder of the company dies. (b) Supplies are purchased on account. (c) An employee is fired. (d) The company pays a cash dividend to its stock
> Indicate the effect each account has on Retained Earnings. ______ (a) Advertising expense. ______ (b) Service revenue. ______ (c) Insurance expense. ______ (d) Salaries and wages expense. ______ (e) Dividends. ______ (f) Rent revenue. ______ (g) Utilitie
> Follow the same format as BE3-6 above. Determine the effect on assets, liabilities, and stockholders’ equity of the following three transactions. (a) Stockholders invested cash in the business for common stock. (b) Paid a cash dividend. (c) Received cash
> Presented below are three economic events. On a sheet of paper, list the letters (a), (b), and (c) with columns for assets, liabilities, and stockholders’ equity. In each column, indicate whether the event increased (+), decreased (−), or had no effect (
> The full disclosure principle dictates that: (a) financial statements should disclose all assets at their cost. (b) financial statements should disclose only those events that can be measured in dollars. (c) financial statements should disclose all event
> Here are some qualitative characteristics of useful accounting information: 1. Predictive value 3. Verifiable 2. Neutral 4. Timely Match each qualitative characteristic to one of the following statements. ______ (a) Accounting information should hel
> Given the characteristics of useful accounting information, complete each of the following statements. (a) For information to be _____, it should have predictive and confirmatory value. (b) _____ means that information accurately depicts what really happ
> The accompanying chart shows the qualitative characteristics of useful accounting information. Fill in the blanks. Enhancing Qualities Fundamental Usefulness Qualities Relevance (f) (a) (g) (b) (h) (c) Understandability Faithful Representation (d) N
> Indicate whether each statement is true or false. (a) GAAP is a set of rules and practices established by accounting standard-setting bodies to serve as a general guide for financial reporting purposes. (b) Substantial authoritative support for GAAP usua
> Ross Music Inc. reported the following selected information at March 31. 2017 Total current assets…………………………………..$262,787 Total assets………………………………………………..439,832 Total current liabilities………………………………..293,625 Total liabilities…………………………………………..376,002
> These selected condensed data are taken from a recent balance sheet of Bob Evans Farms (in millions of dollars). Cash………………………………………..$ 29.3 Accounts receivable……………………20.5 Inventory………………………………….28.7 Other current assets………………….24.0 Total current assets
> Can a business enter into a transaction that affects only the left side of the basic accounting equation? If so, give an example.
> The following information (in millions of dollars) is available for Limited Brands for a recent year: sales revenue $9,043, net income $220, preferred dividend $0, and weighted-average shares outstanding 333 million. Compute the earnings per share for Li
> A list of financial statement items for Chin Company includes the following: accounts receivable $14,000, prepaid insurance $2,600, cash $10,400, supplies $3,800, and debt investments (short-term) $8,200. Prepare the current assets section of the balance
> 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) Ret
> Which is not a required part of an annual report of a publicly traded company? (a) Statement of cash flows. (c) Management discussion and analysis. (b) Notes to the financial statements. (d) All of these are required.
> Indicate whether each of these items is an asset (A), a liability (L), or part of stockholders’ equity (SE). (a) Accounts receivable. (d) Supplies. (b) Salaries and wages payable. (e) Common stock. (c) Equipment. (f) Notes payable.
> At the beginning of the year, Morales Company had total assets of $800,000 and total liabilities of $500,000. (Treat each item independently.) (a) If total assets increased $150,000 during the year and total liabilities decreased $80,000, what is the amo
> Use the basic accounting equation to answer these questions. (a) The liabilities of Lantz Company are $90,000 and the stockholders’ equity is $230,000. What is the amount of Lantz Company’s total assets? (b) The total assets of Salley Company are $170,00
> Indicate which statement you would examine to find each of the following items: income statement (IS), balance sheet (BS), retained earnings statement (RES), or statement of cash flows (SCF). (a) Revenue during the period. (b) Supplies on hand at the end
> Eskimo Pie Corporation markets a broad range of frozen treats, including its famous Eskimo Pie ice cream bars. The following items were taken from a recent income statement and balance sheet. In each case, identify whether the item would appear on the ba
> In alphabetical order below are balance sheet items for Karol Company at December 31, 2017. Prepare a balance sheet following the format of Illustration 1-7 (page 13). Accounts payable…………………. $65,000 Accounts receivable…………………. 71,000 Cash…………………………………
> Holding all other factors constant, indicate whether each of the following signals generally good or bad news about a company. (a) Increase in earnings per share. (b) Increase in the current ratio. (c) Increase in the debt to assets ratio. (d) Decrease i
> Presented below are a number of transactions. Determine whether each transaction affects common stock (C), dividends (D), revenues (R), expenses (E), or does not affect stockholders’ equity (NSE). Provide titles for the revenues and expenses. (a) Costs i
> For each item below, indicate the type of business activity: operating (O), investing (I), or financing (F). (a) _____ Cash received from customers. (b) _____ Cash paid to stockholders (dividends). (c) _____ Cash received from issuing new common stock. (
> Match each of the following types of evaluation with one of the listed users of accounting information. 1. Trying to determine whether the company complied with tax laws. 2. Trying to determine whether the company can pay its obligations. 3. Trying to de
> Match each of the following forms of business organization with a set of characteristics: sole proprietorship (SP), partnership (P), corporation (C). (a) _____ Shared control, tax advantages, increased skills and resources. (b) _____ Simple to set up and
> (a) What are generally accepted accounting principles (GAAP)? (b) What body provides authoritative support for GAAP?
> Tom Dawes, the founder of Footwear Inc., needs to raise $500,000 to expand his company’s operations. He has been told that raising the money through debt will increase the riskiness of his company much more than issuing stock. He doesn’t understand why t
> Name ratios useful in assessing (a) liquidity, (b) solvency, and (c) profitability.
> (a) Geena Lowe believes that the analysis of financial statements is directed at two characteristics of a company: liquidity and profitability. Is Geena correct? Explain. (b) Are short-term creditors, long-term creditors, and stockholders primarily inter
> Identify the two parts of stockholders’ equity in a corporation and indicate the purpose of each.
> How do current liabilities differ from long-term liabilities?
> Which ratio or ratios from this chapter do you think should be of greatest interest to: (a) a pension fund considering investing in a corporation’s 20-year bonds? (b) a bank contemplating a short-term loan? (c) an investor in common stock?
> Define current assets. What basis is used for ordering individual items within the current assets section?
> The accounting equation is Assets = Liabilities + Stockholders’ Equity. Appendix A, at the end of this textbook, reproduces Apple’s financial statements. Replacing words in the equation with dollar amounts, what is Apple’s accounting equation at Septembe
> What types of information are presented in the notes to the financial statements?
> Why is it important for financial statements to receive an unqualified auditor’s opinion?
> What is the purpose of the management discussion and analysis section (MD&A)?
> What was Apple’s largest current asset, largest current liability, and largest item under “Assets” at September 27, 2014?
> Which of these items are liabilities of White Glove Cleaning Service? (a) Cash. (f) Equipment. (b) Accounts payable. (g) Salaries and wages payable. (c) Dividends. (h) Service revenue. (d) Accounts receivable. (i) Rent expense. (e) Supplies.
> (a) Define the terms assets, liabilities, and stockholders’ equity. (b) What items affect stockholders’ equity?
> What is the basic accounting equation?
> What is retained earnings? What items increase the balance in retained earnings? What items decrease the balance in retained earnings?
> What are the three basic forms of business organizations?
> (a) Why is it important for business persons to have an understanding of the basic principles of criminal law and white-collar crime? (b) What is the difference between felonies and misdemeanors?
> Describe three trends in criminal law that impact business organizations and businesspeople.
> Adam was hired by a defense contractor for a position that required a clearance for classified material. He failed to disclose a criminal conviction on a Department of Defense personnel security questionnaire, but admitted that he knew there was false in
> Allen, Mary, and Jon agreed to participate in a program to manipulate the values of securities. Allen made several telephone calls to securities brokers in which he delivered false information about a number of companies. Before any further actions were
> A study of one major company’s code of ethics by the Business Roundtable found that the lower the level of employees on the corporate ladder, the greater their hostility and cynicism toward codes of business ethics. (a) Why might this be true? (b) What
> Discuss why lawyers are sometimes viewed as being unethical. Is the average lawyer more or less ethical than the average business manager?
> Explain how, in our society, ethical values frequently become law and how legal regulation can promote change in ethical values. Describe several common ethical values that are found in law.
> (a) Define stare decisis. What are its advantages? Disadvantages? (b) What is the distinction between a precedent and dicta in judicial decisions, and how does this distinction relate to stare decisis? (c) Alex was on a coast-to-coast trip by automobile.
> (a) Give two additional terms for legislation. (b) Why is uniformity of law important to business? How can legislators achieve uniformity of the laws affecting business? What is the most significant uniform law affecting business? (c) For what purposes d
> (a) Who controls the closely held corporation? Explain. (b) Describe five techniques that a corporation might use to avoid the double taxation of corporate profits.
> (a) Name three kinds of deeds to land and explain what they mean. (b) Why is it important to register a deed? Discuss.
> What are the dollar amounts related to fines and what are the number of years related to prison terms for those that violate the Securities Act of 1934?
> Donna, a corporate director, sold 100 shares of stock in her corporation on June 1, 2007. The selling price was $10.50 a share. Two months later, after the corporation had announced substantial losses for the second quarter of the year, Donna purchased 1
> (a) Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 are of fundamental importance in the law of securities regulations. What is the main purpose of this section and rule? (b) Do you suppose that an oral promise made and not performed
> Describe the Sarbanes-Oxley provisions that require certification of financial statements and internal financial controls.
> Some commentators state that the concept of independence is the most important aspect of Sarbanes-Oxley. How is independence required and why is it critical to corporate governance?
> What was the primary way the Sarbanes-Oxley Act increased the authority and capabilities of the SEC?
> (a) Why is the position of general counsel of an administrative agency so important? (b) What is the purpose of the administrative law judges within administrative agencies?
> This chapter discusses five reasons for having administrative agencies. Give an example for each reason.
> (a) Real estate is no longer defined as extending from the center of the earth to the heavens. Explain how modern property law imposes more limits. (b) If David tosses a ball across Laura’s yard, but it does not touch the surface of her yard, has it infr
> (a) Name three types of security interests in land and explain them. (b) Discuss why recording mortgages and deeds of trust is so important. Why is recording less important in the case of the land sales contract?
> (a) In terms of a gift, explain delivery and constructive delivery. (b) What is a testamentary gift?
> Why is an employment contract usually viewed as being divisible while a construction contract is not considered divisible?
> (a) Why are conditions important in understanding how and when contracts are performed? (b) List the three types of conditions that are most common in contractual performance.
> (a) Imagine that you discover a long-ignored cure for headaches in an old U.S. medical journal from the 1800s, and you apply for a patent. Explain why a patent examiner would likely reject your application. (b) Discuss the patent requirement of nonobviou
> Ralph is a systems analyst for the Silicon Corporation, a major defense contractor. When Ralph’s co-workers learn that he has AIDS, six of them quit work immediately. Fearing that additional resignations will delay production, the company discharges Ralp
> (a) What is the purpose of the PSLRA? (b) List four ways Congress accomplishes this purpose.
> What role do reviewing or appellate courts play in the judicial process? How do they differ from trial courts?
> Detail three trends in the law related to corporate governance. Discuss whether you believe these trends, taken together, reflect an increase or decrease in legal risk associated with managing the organization.
> Albert and Barbara wish to enter into the business of manufacturing fine furniture. Which form of business organization would you recommend in each of the following situations? Explain each of your answers. (a) Barbara is a furniture expert, but she has
> (a) How is mediation fundamentally different from an arbitration? (b) What are some of the advantages and disadvantages of the mediation process?
> What steps usually are followed to provide an effective and efficient mediation? Explain.
> (a) Explain what it means to acquire ownership by accession. (b) Discuss why to John Locke a doctrine similar to accession justifies who owns what.
> (a) What does James Madison think is the problem with a private property system, a system he nevertheless supported? (b) Suppose you say to your roommate, “I have as much property as Bill Gates,” although more accurately in terms of law you should say, “
> What is the rule against perpetuities? What does it have to do with the common good?
> Distinguish a public nuisance from a private nuisance. What does nuisance have to do with the common good? Discuss.
> Smith, a resident of Michigan, was in Florida for a business meeting where he was served with a divorce petition filed by his wife, who had moved to Florida recently. Smith objected to the Florida court’s exercise of personal jurisdiction. What is the ba
> A group of environmentalists filed a lawsuit challenging commercial fishing in Glacier Bay National Park and sued the secretary of the interior and the National Park Service in order to prevent more commercial fishing. (a) What must the environmentalists
> (a) Explain why property can be thought of as the central concept underlying Western legal systems. (b) What does James Madison mean when he says we have property in our opinions “and free communication of them”?
> (a) What is property? How does property differ from “resources”? (b) Why is property important to society? To private enterprise?
> (a) Define the rule of law. How does the rule of law differ from law as the commands of the state? (b) Explain why the rule of law is “an ideal rather than a complete fact.”
> (a) Define law. Compare and contrast law and custom. (b) What role do the courts and police play in the legal system?
> (a) What is the specific purpose of: (1) the Clayton Act, (2) the Railway Labor Act, and (3) the Norris-LaGuardia Act? (b) Why did these laws not increase laborers’ bargaining power to the degree that is considered equal to management’s bargaining powe
> (a) What are fungible goods? Give an example. (b) Discuss why boundaries of use are sometimes difficult to determine.
> Plaintiffs purchased state lottery tickets and were winners along with 76 others. The state had advertised that $1,750,000 would be the prize, but it distributed only $744,471. Plaintiff sued the lottery director, alleging fraud in the conduct of the lot
> (a) Again there are two issues that must be addressed by courts when they review the rulemaking (quasi-legislative) functions of agencies. What are these two issues? Explain each. (b) A national bank sought permission from the comptroller of the currency
> What Is a Security? W.J. Howey Company and Howey-in-the-Hills Service Inc. are Florida corporations under common control and management. Howey Company offers to sell to the public its orange grove, tree by tree. Howey-in-the-Hills Service Inc. offers th
> (a) What are the three major principles of the WTO? (b) Has adherence to those principles improved international trade? (c) Describe the organization of the EU. (d) How is it similar to the structure of the government of the United States?
> (a) Is a lease of a mowing tractor a bailment? Explain. (b) A warehouse contract requires that your equipment be stored in “warehouse 314.” For its own convenience the warehouseman moves your equipment to warehouse 212, and your equipment is destroyed by
> (a) What does it mean to have a fee simple defeasible estate? (b) What is the difference between a remainder interest and a reversion? (c) Arla and Jack own a house as joint tenants with right of survivorship. What is the legal significance of this?
