Foster Corporation is in the third quarter of the current year. and projections are that net income will be down about $600.000 from the previous year. Foster's return on assets is also projected to decline from its usual 15% to approximately 13%. lf earnings do decline. chis year will be the second consecutive year of decline. Foster's president is quite concerned about these projections (and his job) and has called a meeting of the firms officers for next week to consider ways to turn things around-and fast." Margot Barth. treasurer of Foster Corporation, has received a memorandum from her assistant, Lorie McNichols. Barth had asked McNichols if she had any suggestions as to how Foster might improve its earnings performance for the current year. McNichols' memo reads as follows: As you know, we have $3,000,000 of 4%, 20-year bonds payable outstanding. We issued these bonds 10 years ago at face value, so they have 10 years left to maturity. When they mature, we would probably replace them with other bonds. The economy is expecting a period of greater inflation, and interest rates have increased to about 8%. My proposal is to replace these bonds right now. More specifically, I propose: 1. Immediately issue $3,000,000 of 20-year, 8% bonds payable. These bonds will be issued at face value. 2. Use the proceeds from the new bonds to buy back and retire our outstanding 4% bonds. Because of the current high rates of interest, these bonds are trading in the market at about $2,200,000. 3. The benefits to Foster are that (a) the retirement of the old bonds will generate an $800,000 gain for the income statement and (b) there will be an extra $800,000 of cash available for other uses. Barth is intrigued by the possibility of generating an $800,000 gain for the income statement. However she is not sure this proposal is in the best long-run interests of the firm and its stockholders. REQUIRED a. How is the $800.000 gain calculated from the retirement of the old bonds? Where would this gain be reported in Foster's income statement? b. Why might this proposal not be in the best long-run interests of the firm and its stockholders? c. What possible ethical conflict is present in this proposal?
> Simply Technologies, Inc., manufactures electronic equipment used to facilitate control of production processes and tracking of assets using RFID and other technologies. Since its initial public offering in 1996, the company has shown consistent growth i
> What is the effect of capitalized interest on the income statement in the period that an asset is constructed? What is the effect in future periods?
> LVMH Moet Hennessy Louis Vuitton SE (LVMH) is a French multinational luxury goods conglomerate headquartered in Paris. The following information is selected from their 2017 annual report. LVMH has an income tax rate of approximately 30%. a. Compute LVMH'
> Under what circumstances should a company report goodwill in its balance sheet? What is the effect of goodwill on the income statement?
> Use the following year-end footnote information from Cisco Systems, Inc. 's I 0-K report to answer parts a and b. a. At what amount is its available-for-sale investments reported on Cisco's 20 18 balance sheet? Explain. b. How is its net unrealized loss
> Amazon.com, Inc. provides the following description of its revenue recognition policies in its second quarter of 2018 I 0-Q report. Revenue Revenue is measured based on the amount of consideration that we expect to receive, reduced by estimates for retur
> How should companies account for costs, such as maintenance or improvements, which are incurred after an asset is acquired?
> Floyd Corporation is a large engineering and construction company that designs and builds office buildings, apartment buildings, distribution warehouses and other structures for its customers. Projects usually begin with a design and engineering phase, f
> What is a LIFO reserve? How is the LIFO reserve related to unrealized holding gains?
> Assume that General Electric Company agreed in February 2019 to construct an electricity generating facility for Ever source Energy, a utility serving the Boston area. The contract price of $500 million is to be paid as follows: $200 million at the time
> What is inventory "shrink?" How does a company determine the amount of inventory shrink that may have occurred?
> Haskins, Inc. has reached an agreement with a customer, Skaife Corporation, to deliver 200 units of a customized product. The standard billing price per unit is $1,000, and there are no discounts, so Skaife Corporation will pay $200,000 in total. At the
> Under what conditions would each of the inventory costing methods discussed in the chapter produce the same results?
> Discuss and justify when each of the following businesses should recognize revenues: a. A clothing retailer like L Brands, Inc. b. A contractor like The Boeing Company that performs work under long-term government contracts. c. An operator of grocery sto
> In a recent annual report, Kaiser Aluminum Corporation made the following statement in reference to its inventories: "The Company recorded pretax charges of approximately $ 19.4 million because of a reduction in the carrying values of its inventories cau
> On September 1, 2018, Luft, Inc. deposited $400,000 in a debt retirement fund. The company needs $955,000 cash to settle a maturing debt September I, 2026. What is the minimal rate of compound interest required to assure the debt will be paid when due?
> Refer to the income statements for The Gap, Inc., presented in ES-34. a. Prepare common-size income statements for fiscal years 2017 (ending February 3, 2018) and 2016 (ending January 28, 2017). b. Prepare an income statement forecast for the fiscal year
> Even though it does not reflect their physical flow of goods, why might companies adopt last-in, first-out inventory costing in periods when costs are consistently rising?
> Doug Stevens, controller of Nexgen, Inc., has asked his assistant, Gayle Sayres, for suggestions as to how the company can improve its reported financial performance for the year. The company is in the last quarter of the year and projections to the end
> If inventory costs are rising, which inventory costing method- first-in, first-out; last-in, first-out; or average cost-yields the (a) lowest ending inventory? (b) lowest net income? (c) largest ending inventory? (d) largest net income? (e) greatest
> Demski, Inc., manufactures heating and cooling systems. It has a 75% interest in Asare Company, which manufactures thermostats, switches, and other controls for heating and cooling products. It also has a 100% interest in Demski Finance Company, created
> What is one explanation for increased gross profit during periods of rising inventory costs when FIFO is used?
> On January 2, 2019, Magee, Inc., purchased, as a stock investment, 20,000 shares of Dye, lnc.'s common stock for $21 per share, including commissions and taxes. On December 31, 2019, Dye announced a net income of $280,000 for the year and declared a divi
> Why do relatively stable inventory costs reduce the importance of management's choice of an inventory costing method?
> Apple Inc., is one of the most successful enterprises of all time. Its computers, tablets, phones, and watches are all highly desired by consumers, and the company's product innovations keep arriving at a steady pace. Apple's financial success can also b
> LIFO liquidation is often discretionary. What motives might management have to liquidate LIFO inventory?
> For each of the situation below determine if the investment should be reported as a passive investment (P). an investment reflecting significant influence 151). or a i:ontrolling interest (C).
> Restaurant Brands International, Inc. reports the following in footnote 13 to their financial statements in their 2017 I 0-K related to redeemable preferred stock. Note 13 Redeemable Preferred Shares On December 12, 2014 we issued 68,530,939 Class A 9.0%
> LIFO liquidation may be involuntary-that is beyond the control of management. Suggest two situations that might lead to involuntary UFO liquidation.
> Liz Plummer, vice president and general counsel, chairs the Executive Compensation Committee for Sunlight Corporation. Four and one-half years ago, the compensation committee designed a performance bonus plan for top management that was approved by the b
> Analysts claim that it is more difficult to forecast net income for a company that uses LIFO. Why might this be true?
> The stockholders· equity section of Pillar Corporation ·s comparative balance sheet at the end of 2018 and 2019 is presented below. It is part of the financial data just reviewed at a stockholders' meeting. The following items
> Under what circumstances is it justified to include transportation costs in the value of the inventory purchased?
> Ron King. chair person of the board of directors and chief executive officer of Image. lnc .. is 1x.rndering a recommendation to make to the firm's board of directors in response to actions taken by Jack Hatcher. Hatcher recently informed King and other
> Explain how management can shift income from one period into another by its estimation of uncollectible accounts.
> Andrea Frame and her supervisor are sent on an out-of-town assignment by their employer. At the supervisor's suggestion, they stay at the Spartan Inn (across the street from the Luxury Inn). After three days of work, they settle their lodging bills and l
> How might earnings forecasts that are published by financial analysts encourage companies to manage earnings?
> Linda Reed, an executive at VIP Inc. has earned a performance bonus. She has the option of accepting $60,000 now or $100,000 5 years from now. What would you advise her to do? Explain and support with calculations.
> Sarah Penney operates the Wildlife Picture Gallery, selling original art and signed prints received on consignment (rather than purchased) from recognized wildlife artists throughout the country. The firm receives a 30% commission on all art sold and rem
> Why does GAAP allow management to make estimates of amounts that are included in financial statements? Does this improve the usefulness of financial statements? Explain.
> Northrop Grumman Corporation reports the following in footnote 4 to its 2008 I 0-K related to its convertible preferred stock. Conversion of Preferred Stock-On February 20, 2008, the company's board of directors approved the redemption of the 3.5 million
> What is the concept of non-GAAP income or proforma income and why has this income measure been criticized?
> Alphabet Inc. reported the following in note 14 to its 2018 10-K report: Note 14. Income Taxes Income from continuing operations before income taxes included income from domestic operations of $12.0 billion, $10.7 billion, and $15.8 billion for the years
> Why might companies want to manage earnings? Describe some of the tactics that some companies use to manage earnings.
> The following information is taken from Williams-Sonoma, lnc.'s 10-K . Note D: Income Taxes The components of earnings before income taxes, by tax jurisdiction, are as follows: The provision for income taxes consists of the following: We have historicall
> Explain the concept of a big bath and why restructuring costs are often identified with this event.
> Identify the two typical categories of restructuring costs and their effects on the balance sheet and the income statement.
> Debra Wilcox won $7 million in the California lottery. She must choose how she wants the prize to be paid to her. First, Debra can elect to receive 26 annual payments, with the first payment due immediately. Second, she can elect to receive a single paym
> Why are discontinued operations reported separately from continuing operations in the income statement?
> Estimating the bad debts expense by aging accounts receivable generally results in smaller errors than the percentage of credit sales approach. Can you explain why?
> The following is from the most recent I 0-K report of 3M Company for the year ended December 31, 2017. In its footnotes, 3M provided the following information about the gain on sale of businesses in the income statement. Gain on Sale of Businesses: In 20
> Under what circumstances would it be correct to say that a company would be better off with more uncollectible accounts?
> John Wiley and Sons, Inc. publishes books, periodicals, software, and other digital content. Its April 30, 2018, balance sheet reported the following amounts for accounts receivable ($ thousands): Wiley's income statement provided the following detail of
> During an examination of Wallace Company's financial statements, you notice that the allowance for uncollectible accounts has decreased as a percentage of accounts receivable. What are the possible explanations for this change?
> What is the process that guides firms in the recognition of revenue? What does each of the steps mean? How does this process work for a company like Abercrombie & Fitch Co., a clothing retailer? How would it work for a construction company that builds of
> Rye Company is considering purchasing a new machine with a useful life of ten years, at which time its salvage value is estimated to be $50,000. Management estimates a net increase in operating cash inflow due to the new machine at $200,000 per year. Wha
> Lundholm Company's comparative balance sheets, income statement, and statement of cash flows for July are presented below: REQUIRED a. Set up T-accounts and enter beginning and ending balances for each account in Lundholm Company's balance sheet. b. Prov
> What is meant by the term "net" in net operating assets (NOA)?
> How does a firm go about increasing its AT ratio? What strategies are likely to be most effective?
> What are common-size financial statements? What role do they play in financial statement analysis?
> Lady G's Fashions, a specialty retailer of women's apparel, markets its products through retail stores and catalogs. Selected information from its 2019 and 2018 balance sheets is as follows. The following excerpts are from Lady G's Fashions accompanying
> Explain what it means when a company's ROE exceeds its ROA.
> It is the end of the accounting year for Juliet Javetz, controller of a medium-sized, publicly held corporation specializing in toxic waste cleanup. Within the corporation, only Javetz and the president know that the firm has been negotiating for several
> Describe the concept of asset turnover. What does the concept mean and why is it so important to understanding and interpreting financial performance?
> Rex Corporation accepted a $ 10,000, 5% interest bearing note from Brooks Inc. on December 1, 2018 in exchange for machinery with a list sales price of $9,500. The note is payable on December 1, 2021. If the prevailing interest rate is 8%, what revenues
> Dawn Riley deposited $4,000 in a money market account on January 2, 2019. How much will her savings be worth on January 2, 2025 if the money market account earns a return of a. 4%? b. 6%? C. 8%?
> What is the difference between a purchase invoice and a sales invoice?
> Why is using the Purchases Returns and Allowances account preferred to crediting these transactions to Purchases?
> On what financial statement do the accounts related to purchases of merchandise appear? In which section of this statement are they reported?
> What is the normal balance of the Purchases accounts?
> What account should be debited for transportation charges related to equipment purchases?
> What major safeguards should be built into a system of internal control for purchases of goods?
> In a particular state, the sales tax rate is 5 percent of sales. The retailer is allowed to record both the selling price and the tax in the same account. Explain how to compute the sales tax due when this method is used.
> The sales tax on a credit sale is not collected from the customer immediately. When is this tax usually entered in a firm’s accounting records? What account is used to record this tax?
> What kind of account is Sales Returns and Allowances?
> 1. In discussing a firm’s latest financial statements, a manager says that it is the “results on the bottom line” that really count. What does the manager mean? 2. If a firm’s expenses equal or exceed its revenue, what actions might management take? 3. H
> What kind of account is Sales Discounts?
> Why is a sales return or allowance usually recorded in the Sales Returns and Allowances account rather than being debited to the Sales account?
> What purposes does the schedule of accounts receivable serve?
> How are the net sales for an accounting period determined?
> What is a trade discount? Why do some firms offer trade discounts to their customers?
> What is open-account credit?
> What is the name of the account used to record the fees charged by the credit card company to the seller?
> Why are bank credit card sales similar to cash sales for a business?
> When a firm makes a sale involving a credit card issued by a credit card company, does the firm have an account receivable with the cardholder or with the credit card company?
> What document does a business submit to a credit card company to collect amounts owed for purchases by customers using a credit card issued by a credit card company?
> Gloria’s Fabrics is a large fabric provider to the general public. The accounting office has three employees: accounts receivable clerk, accounts payable clerk, and full charge bookkeeper. The accounts receivable clerk creates the sales invoices and reco
> How do retail and wholesale businesses differ?
> What accounts appear on a postclosing trial balance?
> How is the Income Summary account used in the closing procedure?
> What is the accounting cycle?
> Why does the accountant record closing entries at the end of a period?
> Programs Plus is a retail firm that sells computer programs for home and business use. Programs Plus operates in a state with no sales tax. On December 31, 20X1, its general ledger contained the accounts and balances shown below: The following accounts h
> Review the following excerpt from the 2018 consolidated statement of income for Southwest Airlines Co. Answer the questions that follow. Analyze: 1. Although the format for the heading of an income statement can vary from company to company, the heading
> The unadjusted trial balance of Ben’s Jewelers on December 31, 20X1, the end of its fiscal year, appears below. INSTRUCTIONS 1. Copy the unadjusted trial balance onto a worksheet and complete the worksheet using the following informatio
> The Valley Voice is a local newspaper that is published Monday through Friday. It sells 90,000 copies daily. The paper is currently in a profit squeeze, and the publisher, Tom Turkey, is looking for ways to reduce expenses. A review of current distributi
> In each of the following independent situations, decide whether the business organization should treat the person being paid as an employee and should withhold social security, Medicare, and employee income taxes from the payment made. 1. George Jacobs o
> Several years ago, Kat Cortz opened Ocho Tacos, a restaurant specializing in homemade tacos. The restaurant was so successful that the company expanded, and now operates eight restaurants in the local area. Cortez tells you that when she first started, s
> Delta Company pays salaries and wages on the last day of each month. Payments made on December 31, 20X1, for amounts incurred during December are shown below. Cumulative amounts paid prior to the December 31 payroll for the persons named are also shown.
> Mike Ryan is the owner of Ryan Contractors, a successful small construction company. He spends most of his time out of the office supervising work at various construction sites, leaving the operation of the office to the company’s offic
