Following is a list of account titles and balances for Pennington Investment Corporation as of January 31, 2013. Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 92,400 Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158,200 Accumulated Depreciation—Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,500 Accumulated Depreciation—Machinery and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 116,300 Additional Paid-In Capital—Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 605,000 Allowance for Doubtful Notes and Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,700 Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 320,000 Cash Fund for Stock Redemption. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,500 Cash in Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,320 Cash on Hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96,250 Claim for Income Tax Refund . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000 Common Stock, $1 par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,000 Employees’ Income Taxes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,360 Income Taxes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,000 Interest Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,790 Interest Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,700 Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 201,500 Investment Securities (trading) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,750 Investments in Undeveloped Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 193,500 Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 213,000 Machinery and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,500 Miscellaneous Supplies Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,200 Notes Payable (current) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68,320 Notes Payable (due in 2016) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,800 Notes Receivable (current) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,960 Preferred Stock, $5 par. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285,000 Prepaid Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,900 Retained Earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,410 Salaries and Wages Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,700 Instructions: 1. Prepare a properly classified balance sheet. 2. Assume net income of $300,000 and sales of $7,000,000. Compute the current ratio, debt ratio, and asset turnover.
> What is conservatism in accounting? What is an example of conservatism in accounting practice?
> Describe the process one should use in forecasting depreciation expense.
> Refer to Practice 3-9. Net income for the year totaled $3,600. Compute return on assets. In Practice 3-9 Current Assets: Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> Diageo is a United Kingdom (UK) consumer products firm, best known in the United States for the following brand names: Smirnoff, Johnnie Walker, J&B, Gordon’s, Seagram’s, and Guinness. Diageo’s 20
> What is the starting point for the preparation of forecasted financial statements?
> Refer to Practice 3-9. Sales for the year totaled $50,000. Compute asset turnover. In Practice 3-9 Current Assets: Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> In 1998, then-SEC Chairman Arthur Levitt gave a speech in which he identified five techniques of accounting hocus-pocus. List those five techniques.
> Identify the major sections (components of income) that are included in a multiple-step income statement.
> Refer to Practice 3-9. As of the end of the year, the total market value of shares outstanding was $10,000. Compute the book-to-market ratio. In Practice 3-9 Current Assets: Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> What are two potential causes of non-GAAP accounting?
> Use the information in Practice 3-9 to compute the proportion of total assets in each of the following asset categories. (a) Inventory (b) Property, Plant, and Equipment In Practice 3-9 Current Assets: Cash. . . . . . . . . . . . . . . . . . . . . . . .
> What is the meaning of “intraperiod” income tax allocation?
> What are some examples of supplementary information included in the notes to financial statements?
> What are some possible disadvantages of a multiple-step income statement?
> In the press release announcing Disney’s results for the first fiscal quarter of 2008 ending December 29, 2007, the company stated the following: The Walt Disney Company today reported earnings for its first fiscal quarter ended December 29, 2007. Dilute
> Refer to Practice 3-9. Net income for the year totaled $2,000. Compute return on equity. In Practice 3-9 Current Assets: Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> What does the term income smoothing mean?
> What constitutes authoritative GAAP in the United States?
> Under double-entry accounting, what are the debit/credit relationships of accounts?
> How does the SEC influence the setting of accounting standards?
> What one financial ratio summarizes everything about the performance of a company? How is it computed?
> What are the four factors that might motivate a manager to attempt to manage earnings?
> Explain how the asset turnover ratio provides a measure of a company’s overall efficiency.
> What types of reports are generated from the accounting system?
> What are financial ratios?
> Safeway operates 1,775 supermarkets in the United States and Canada. In the United States, Safeway is located principally in the Western, Southwestern, Rocky Mountain, Midwestern, and Mid-Atlantic regions. Kroger operates 2,468 stores in Northeastern, We
> You are the chief financial officer (CFO) of Clarke Company, which is publicly traded. At the annual shareholders’ meeting you discussed the company’s recent reported results. As part of your presentation, you illustrated the minimum and maximum values f
> In what order are assets usually listed in the balance sheet?
> Jacob Marley is the controller for Dickens Company. Marley has been with Dickens for more than 30 years. Marley is a dedicated employee and prides himself on the efficiency of his accounting department staff. Over the years, Marley has received many inqu
> How do the Equity sections of proprietorships, partnerships, and corporations differ from one another?
> Worthington Company and Millward Company both reported pro forma earnings numbers in conjunction with their release of results for the most recent quarter. Both announcements included a reconciliation to GAAP earnings. These reconciliations are reproduce
> What effect, if any, does the use of a work sheet have on the sequence of the reporting phase of the accounting process?
> What five items make up the general-purpose financial statements?
> The H.K. Clark Health Club sells lifetime memberships for $5,000 each. These memberships entitle a person to unlimited access to the club’s weight room, exercise equipment, swimming pool, and sauna. Once a lifetime membership fee is paid, it is not refun
> “Liabilities are obligations denominated in precise monetary terms.” Do you agree or disagree? Explain.
> Lily Company has historically reported a bad debt expense amount of between 1% and 4% of sales. The percentage for any given year is a function of both the business conditions for the year and whether recent experience suggests that the estimates in past
> Joseph Han has $10 million that he wishes to invest. He has identified two candidate companies: Company A and Company B. Both companies are privately held and have never yet released external financial statements. Joseph Han has some familiarity with the
> What is the importance of the term probable in the definition of an asset?
> Refer back to the section of the chapter entitled “Preparing Adjusting Entries.” Who determines how long buildings and furniture and equipment are to last? Who determines the dollar amount of accounts receivable that are doubtful? Suppose we were to chan
> The financial position of St. Charles Ranch is summarized in the following letter to the corporation’s accountant. Dear Dallas: The following information should be of value to you in preparing the balance sheet for St. Charles Ranch as of December 31, 20
> Some accounting students feel that the mechanics of accounting (journal entries and T-accounts) are for bookkeepers. Because these students are training to be accountants, they see no need to spend a great deal of time studying these mechanics. In one pa
> The following balance sheet was prepared by the accountant for Midway Company. Instructions: Prepare a corrected classified balance sheet using appropriate account titles. Midway Company Balance Sheet June 30, 2013 Assets Cash 2$ 44,500 Investment
> Locate the 2009 financial statements for Lockheed Martin Corporation on the Internet. Reconstruct the company’s adjusted trial balance as of December 31, 2009.
> (a) What role does the EITF play in establishing accounting standards? (b) Why can it meet this role more efficiently than the FASB?
> The accountant for Sierra Corp. prepared the following schedule of liabilities as of December 31, 2013. Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 85,000 Notes
> Julie is successful in her position as a consultant for Worldwide Enterprises. She has selectively invested her money in stocks of several companies. She receives the annual reports and faithfully analyzes them as she was taught in her university account
> Adjusted account balances and supplemental information for Brockbank Research Corp. as of December 31, 2013, are as follows: Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> The Boston Celtics are the most successful team in professional basketball history. Teams led by Bill Russell, Larry Bird, and Kevin Garnett have won a total of 17 NBA championships. The Celtics are also an unusual professional sports team because owners
> Computers have drastically altered the way accounting records are maintained. Almost all businesses now keep the bulk of their accounting records on computers. However, the financial statements are still prepared methodically on only a quarterly and annu
> Alice Guth operates a low-impact aerobics studio. Alice has been in business for three years and has always had her financial statements prepared on a cash basis. This year, Alice’s accountant has suggested that accrual-based financial statements would g
> Denton Equipment Inc. furnishes you with the following list of accounts. Accounts Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 66,000 Accounts Receivable . . . .
> Jim Price and Elaine Bijard are taking an accounting systems course at their local university. They are intrigued with the rapid advances in technology and communication that are occurring in the computer world. Today’s lecture was especially thought pro
> The following information relates to two companies, designated Company A and Company B. One of the companies is a traditional steel manufacturer. The other is a successful Internet retailer. Using the following information, identify which is which, and e
> Explain why each of the following hypothetical events would not be recorded in a journal entry. 1. A famous and much-beloved movie star is secretly filmed by an investigative news team using your company’s product when she in fact has an endorsement cont
> Describe the nature and purpose of a work sheet.
> The following information was used to prepare the financial statements for Delta Chemical Company. Prepare the necessary notes to accompany the statements. Delta uses the LIFO inventory method on its financial statements. If the FIFO method were used, th
> Consider the following account of a veterinarian attempting to hire his first bookkeeper: Miss Harbottle, the prospective bookkeeper, paused at the desk, heaped high with incoming and outgoing bills and circulars from drug firms with here and there stray
> Research has discovered a phenomenon common to both capitalist managers in the West and socialist managers in China. What is this phenomenon?
> For each of the following items, indicate whether the item should be reflected in the 2013 financial statements for Tindall Company. If the item should be reflected, indicate whether it should be reported in the financial statements themselves or by note
> The following account balances are taken from the general ledger of Whitni Corporation on December 31, 2013, the end of its fiscal year. The corporation was organized January, 2005. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> The following events occurred after the end of the company’s fiscal year but before the annual audit was completed. Classify each event as to its impact on the financial statements, that is, (1) Reported by changing the amounts in the financial statement
> Frank Elsholz is the new chief executive officer (CEO) of Kearl Street Company. You are the controller for Kearl Street; you have been with the company for 15 years. In connection with the preparation of this year’s financial statements (the first prepar
> Schlofman Company has the following assets. Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,000 Accounts receivable . . . . . . . . . . . . . . . . . . .
> Data for adjustments at December 31, 2013, are as follows: (a) Taipei International uses a perpetual inventory system. (b) An analysis of Accounts Receivable reveals that the appropriate year-end balance in Allowance for Bad Debts is $750. (c) Equipment
> The following data are from the financial statements of Riverton Company. Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,000 Total assets . . . . . . . . . .
> Account balances taken from the ledger of Builders’ Supply Corporation on December 31, 2013, before adjustment, follow information relating to adjustments on December 31, 2013: (a) Allowance for Bad Debts is to be increased to a balance of $3,000. (b) Bu
> What characteristics of the standard-setting process are designed to increase the acceptability of standards established by the FASB?
> In its annual report to stockholders, Hakobe Inc. presents a condensed balance sheet with detailed data provided in supplementary schedules. 1. From the adjusted trial balance of Hakobe, prepare the following sections of the balance sheet, properly class
> Locate the 2009 financial statements for The Walt Disney Company on the Internet. 1. Compute a current ratio for Disney as of October 3, 2009. How does this current ratio compare with the prior year’s current ratio? 2. Compute Disney’s asset turnover for
> Gee Enterprises records all transactions on the cash basis. Greg Gee, company accountant, prepared the following income statement at the end of the company’s first year of operations: You have been asked to prepare an income statement
> Use the information in Practice 3-3 to compute the debt ratio. Assume that the list includes all liability and equity items. In Practice 3-3 Accrued Income Taxes Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 9,000 Notes Payable (
> The bookkeeper for Joe’s Hardware Co. records all revenue and expense items in nominal accounts during the period. The following balances, among others, are listed on the trial balance at the end of the fiscal period, December 31, 2013, before accounts h
> The following balance sheet was prepared for Jared Corporation as of December 31, 2013. The following additional information relates to the December 31, 2013, balance sheet. (a) Cash includes $4,000 that has been restricted to the purchase of manufactu
> The accountant for Save More Company made the following adjusting entries on December 31, 2013. Further information is provided as follows: (a) Annual rent is paid in advance every October 1. (b) Advertising materials are purchased at one time (June 1)
> From the following data, compute the working capital for Hales Shipping Co. at December 31, 2013. Cash in general checking account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 34,000 Cash in fund to be used
> On December 31, Trinkets Supply Company noted the following transactions that occurred during 2013, some or all of which might require adjustment to the books. (a) Payment of $4,300 to suppliers was made for purchases on account during the year and was n
> Accounting standards place limits on the set of allowable alternative accounting treatments, but the accountant must still exercise judgment to choose among the remaining alternatives. In making those choices, which of the following should the accountant
> Using the format provided, identify for each account, including an asterisk for contra accounts: 1. Whether the account will appear on a balance sheet (B/S), income statement (I/S), or neither (N) 2. Whether the account is an asset (A), liability (L), ow
> Payment of insurance in advance may be recorded in either (a) An expense account or (b) An asset account. Which method would you recommend? What periodic entries are required under each method?
> General Electric has long been known as a company that smoothes its reported earnings. What is it about General Electric that makes it possible for the company to smooth earnings?
> FASB Concepts Statement No. 1 states, “The primary focus of financial reporting is information about an enterprise’s performance provided by measures of earnings and its components.” Why is it unwise for users of financial statements to focus too much at
> Imagine that you have been selected to compete with students from other universities in presenting a case considering whether the FASB should be abolished and its standard setting role taken over by the SEC. Prepare a one-page summary outlining the major
> Selfish Gene Company is a merchandising firm. The following events occurred during the month of May. (Note: Selfish Gene maintains a perpetual inventory system.) May 1 Received $40,000 cash as new stockholder investment. 3 Purchased inventory costing $8,
> The following information comes from the 2009 financial statements of McDonald’s Corporation. Conventional franchise arrangements generally include a lease and a license and provide for payment of initial fees, as well as continuing ren
> Spilker Aviation, Inc., failed to make year-end adjustments to record accrued salaries and recognize interest receivable on investments over the last three years as follows: What impact would the correction of these errors have on the net income for th
> Locate the 2009 financial statements for The Walt Disney Company on the Internet and consider the following questions: 1. How well did Disney do financially during the year ended October 3, 2009? 2. Comment on the level of detail in Disney’s balance shee
> An analysis of Goulding, Inc., disclosed changes in account balances for 2013 and the following supplementary data. From these data, calculate the net income or loss for 2013. Goulding sold 4,000 shares of its $5 par stock for $8 per share and received
> The existence of just four large CPA firms that service virtually all of the major industrial and financial companies and thus dominate the accounting profession has led to criticism through the years. 1. What dangers do you see from the dominance of a f
> The following balance sheet information represents actual data for 2013 and forecasted data for 2014: The actual income statement for 2013 is as follows: Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
> In the 1970s, a leader in the accounting profession proposed that there really needed to be only one underlying standard to govern the establishment of generally accepted accounting principles. That standard was identified as fairness. Financial statemen
> Contrast the roles of an accountant and an auditor.
> Bohr Company has a credit agreement with a syndicate of banks. In order to impose some limitations on Bohr’s financial riskiness, the credit agreement requires Bohr to maintain a current ratio of at least 1.4 and a debt ratio of 0.55 or less. The followi
> What is the difference between a code law country and a common law country?
> Accounting has been defined as a service activity. Who is served by accounting and how do they benefit?
> Refer to Exercises 2, 4, and 6. Compute the expected value of perfect information. In Exercises 2, 4, and 6 Wilhelms Cola Company plans to market a new lime-flavored cola this summer. The decision is whether to package the cola in returnable or in
> Refer to Exercises 2 and 4. Compute the expected opportunity losses. In Exercises 2 and 4 Wilhelms Cola Company plans to market a new lime-flavored cola this summer. The decision is whether to package the cola in returnable or in nonreturnable bott
> Refer to Exercise 2, involving Wilhelms Cola Company. Develop an opportunity loss table, and determine the opportunity loss for each decision. In Exercise 2 Wilhelms Cola Company plans to market a new lime-flavored cola this summer. The decision is
> You’re about to drive to New York. If your car’s engine is out of tune, your gas cost will increase by $100. Having the engine tested will cost $20. If it’s out of tune, repairs will cost $60. Before testing, the probability is 30% th
> Wilhelms Cola Company plans to market a new lime-flavored cola this summer. The decision is whether to package the cola in returnable or in nonreturnable bottles. Currently, the state legislature is considering eliminating nonreturnable bottles. Tybo W
> Refer to Exercise 2. Reverse the probabilities; that is, let P(S1) = .30 and P(S2) = .70 and use Expected Monetary Value to evaluate the decision. Does this alter your decision? In Exercise 2 Wilhelms Cola Company plans to market a new lime-flavore
