Question: How can external parties be informed about

> As a team, select an industry to analyze. Reuters provides lists of industries under Sectors and Industries at www.reuters.com . (Click on an industry and then select Company Rankings for a list of members of that industry.) Each team member should acqui

> Your best friend from home writes you a letter about an investment opportunity that has come her way. A company is raising money by issuing shares of stock and wants her to invest $20,000 (her recent inheritance from her great-aunt’s es

> Pete’s Painting Service was organized as a corporation on January 20, 2011, by three individuals, each receiving 5,000 shares of stock from the new company. The following is a schedule of the cumulative account balances immediately afte

> The October 4, 2004, edition of BusinessWeek presented an article titled “Fuzzy Numbers” on issues related to accrual accounting and its weaknesses that have led some corporate executives to manipulate estimates in their favor, sometimes fraudulently. Yo

> Refer to the annual report for American Eagle Outfitters in Appendix B. Required: 1. The annual report or 10-K report for American Eagle Outfitters provides selected financial data for the last five years. Compute the total asset turnover ratio for eac

> Mike Lynch is the manager of an upstate New York regional office for an insurance company. As the regional manager, his compensation package comprises a base salary, commissions, and a bonus when the region sells new policies in excess of its quota. Mike

> Julio Estela started and operated a small boat repair service company during 2012. He is interested in obtaining a $100,000 loan from your bank to build a dry dock to store boats for customers in the winter months. At the end of the year, he prepared the

> Refer to AP4-3. Bill’s Catering Company is at its accounting year-end, December 31, 2011. The following data that must be considered were developed from the company’s records and related documents: a. During 2011, off

> Refer to the financial statements of American Eagle Outfitters in Appendix B, Urban Outfitters in Appendix C, and the Industry Ratio Report in Appendix D at the end of this book. Required: 1. By what title does each company call its income statement? E

> Refer to the financial statements of Urban Outfitters in Appendix C at the end of the book. Required: 1. What is the company’s revenue recognition policy? 2. Assuming that $50 million of cost of sales was due to non inventory purchase expenses (distribu

> Refer to the financial statements of American Eagle Outfitters in Appendix B at the end of the book. Required: 1. State the amount of the largest expense on the income statement for the year ended January 31, 2009, and describe the transaction represen

> The following are the summary account balances from a recent balance sheet of Exxon Mobil Corporation. The accounts have normal debit or credit balances, but they are not necessarily listed in good order. The amounts are shown in millions of dollars. Ass

> Refer to AP3-4. Alpine Stables, Inc., was established in Denver, Colorado, on April 1, 2011. The company provides stables, care for animals, and grounds for riding and showing horses. You have been hired as the new assistant controller. The following tr

> In July 2004, the U.S. government filed civil and criminal charges against four former executives of Netherlands-based Ahold’s subsidiary U.S. Foodservice, Inc., an operator of supermarkets such as Bi-Lo and Giant Food Stores. Two of the four executives

> Alpine Stables, Inc., was established in Denver, Colorado, on April 1, 2011. The company provides stables, care for animals, and grounds for riding and showing horses. You have been hired as the new assistant controller. The following transactions for Ap

> Big Dog Holdings, Inc., is the parent company of Big Dog USA, a company that develops, markets, and retails a collection of consumer products centered around the signature BIG DOGS name, logo, and “Big Dog” characters.

> Jimmy Langenberger is the president of TemPro, Inc., a company that provides temporary employees for not-for-profit companies. TemPro has been operating for five years; its revenues are increasing with each passing year. You have been hired to help Jimmy

> The following is a series of accounts for Kruger & Laurenzo, Incorporated, which has been operating for two years. The accounts are listed and numbered for identification. Following the accounts is a series of transactions. For each transaction, indi

> Refer to AP4-2 . Hannah Company’s annual accounting year ends on June 30. It is June 30, 2012, and all of the entries for the current year have been made except the following adjusting entries: a. On March 30, 2012, Hannah paid a six-m

> What is a journal entry?

> Briefly explain what is meant by transaction analysis. What are the two steps in transaction analysis?

> Explain what debit and credit mean.

> Define a business transaction in the broad sense, and give an example of two different kinds of transactions.

> Explain what the following accounting terms mean: a. Separate-entity assumption b. Unit-of-measure assumption c. Continuity assumption d. Historical cost principle

> Define the following: a. Asset b. Current asset c. Liability d. Current liability e. Contributed capital f. Retained earnings

> Refer to the financial statements of American Eagle Outfitters in Appendix B, Urban Outfitters in Appendix C, and the Industry Ratio Report in Appendix D at the end of this book. Required: 1. Compute the current ratio for both companies. Compared to the

> What is the primary objective of financial reporting for external users?

> How is the current ratio computed and interpreted?

> What transactions are classified as investing activities in a statement of cash flows? What transactions are classified as financing activities?

> Bill’s Catering Company is at its accounting year-end, December 31, 2011. The following data that must be considered were developed from the company’s records and related documents: a. During 2011, office supplies amounting to $1,200 were purchased for c

> What is a T-account? What is its purpose?

> What two accounting equalities must be maintained in transaction analysis?

> You purchased an XIT auto for $18,000 by making a $3,000 cash payment and six semi annual installment payments for the balance at 12 percent interest. Determine the amount of each payment.

> If you hold a valid contract that will pay you $8,000 cash in 10 years and the going rate of interest is 10 percent, what is its present value? Show your computations.

> Explain the concept of the time value of money.

> Compute 2011 interest expense for the following note: face, $4,000; 12 percent interest; date of note, April 1, 2011.

> Define working capital. How is it computed?

> What is an annuity?

> What is the fundamental accounting model?

> Explain the basic difference between future value and present value.

> Hannah Company’s annual accounting year ends on June 30. It is June 30, 2012, and all of the entries for the current year have been made except the following adjusting entries: a. On March 30, 2012, Hannah paid a six-month premium for property insurance,

> Lisa Frees and Amelia Ellinger had been operating a catering business for several years. In March 2011, the partners were planning to expand by opening a retail sales shop and decided to form the business as a corporation called Traveling Gourmet, Inc. T

> What is a contingent liability? How is a contingent liability reported?

> Define note payable. Differentiate between a secured and an unsecured note.

> Define deferred revenue. Why is it a liability?

> Define accrued liability. What type of entry usually reflects an accrued liability?

> What is the quick ratio? How is it related to the classification of liabilities?

> A liability is a known obligation of either a definite or an estimated amount. Explain.

> Liabilities are measured and reported at their current cash equivalent amount. Explain.

> Define liability. Differentiate between a current liability and a long-term liability.

> For accounting purposes, what is an account? Explain why accounts are used in an accounting system.

> Starbucks Corporation purchases and roasts high-quality whole bean coffees and sells them along with fresh-brewed coffees, Italian-style espresso beverages, a variety of pastries and confections, coffee-related accessories and equipment, and a line of pr

> Complete the following schedule: Table Values Concept i = 5%,n = 4; i = 10%, n = 7; i = 14%,n = 10 PV of $1 PV of annuity of $1

> Vigeland Company completed the following transactions during 2011. The annual accounting period ends December 31, 2011. Jan. 15 Purchased and paid for merchandise for resale at an invoice cost of $14,200; periodic inventory system. A

> On January 1, 2011, Spearfish Company completed the following transactions (use an 8 percent annual interest rate for all transactions): a. Deposited $50,000 in a debt retirement fund. Interest will be computed at six-month intervals and added to the fu

> On December 31, 2011, Mercury Company created a fund that will be used to pay the principal amount of a $120,000 debt due on December 31, 2014. The company will make four equal annual deposits on each December 31 in 2011, 2012, 2013, and 2014. The fund w

> After hearing a knock at your front door, you are surprised to see the Prize Patrol from a large, wellknown magazine subscription company. It has arrived with the good news that you are the big winner, having won $12.5 million. You discover that you have

> On January 1, 2011, Boston Company completed the following transactions (use a 7 percent annual interest rate for all transactions): a. Borrowed $115,000 for seven years. Will pay $8,050 interest at the end of each year and repay the $115,000 at the end

> Mansfield Corporation purchased a new warehouse at the beginning of 2011 for $1,000,000. The expected life of the asset is 20 years with no residual value. The company uses straight-line depreciation for financial reporting purposes and accelerated depre

> PepsiCo, Inc., is a $25 billion company in the beverage, snack food, and restaurant businesses. PepsiCo’s annual report included the following note: At year-end, $3.5 billion of short-term borrowings were reclassified as long-term, reflecting PepsiCo’s

> For each of the following transactions, determine whether cash flows from operating activities will increase, decrease, or remain the same: a. Purchased merchandise on credit. b. Paid an account payable in cash. c. Accrued payroll for the month but di

> For each of the following situations, determine whether the company should (a) report a liability on the balance sheet, (b) disclose a contingent liability, or (c) not report the situation. Justify and explain your conclusions. 1. An automobile compan

> Complete the following matrix by entering either increase or decrease in each cell: Item Debit Credit Revenues Losses Gains Expenses

> Why are accounting assumptions necessary?

> Dell Computers is a leader in the industry with over $56 billion in sales each year. A recent annual report for Dell contained the following note: Warranty We record warranty liabilities at the time of sale for the estimated costs that may be incurred un

> Using the data from the previous exercise, complete the following requirements. Required: 1. Determine the financial statement effects for each of the following: (a) the adjusting entry for accrued wages required on December 31, 2012, (b) the January

> During 2012, Walnut Company completed the following two transactions. The annual accounting period ends December 31. a. Paid and recorded wages of $130,000 during 2012; however, at the end of December 2012, three days’ wages are unpaid and unrecorded be

> Using data from the previous problem, complete the following requirements. Required: 1. For each transaction (including adjusting entries) listed in the previous problem, indicate the effects (e.g., cash + or −), using the following schedule: Date

> Rogers Company completed the following transactions during 2011. The annual accounting period ends December 31, 2011. (AP9-1) Jan. 8 Purchased merchandise for resale on account at an invoice cost of $14,860; assume a periodic inventor

> Fred wants to save enough money each year so that he can purchase a sports car in January 2013. Fred receives a large bonus from his employer every December 31. He anticipates that the car will cost $54,000 on January 1, 2013. Which of the following will

> Jacobs Company borrowed 100,000 at 8 percent interest for three months. How much interest does the company owe at the end of three months? a. $8,000 b. $2,000 c. $800 d. $200

> The present value of an annuity of $10,000 per year for 10 years discounted at 8 percent is what amount? a. $5,002 b. $67,101 c. $53,349 d. $80,000

> How is working capital calculated? a. Current assets multiplied by current liabilities. b. Current assets plus current liabilities. c. Current assets minus current liabilities. d. Current assets divided by current liabilities.

> Strauderman Delivery Company, Inc., was organized in 2011 in Wisconsin. The following transactions occurred during year 2011: a. Received $40,000 cash from organizers in exchange for stock in the new company. b. Purchased land in Wisconsin for $16,000,

> Which of the following transactions would usually cause accounts payable turnover to increase? a. Payment of cash to a supplier for merchandise previously purchased on credit. b. Collection of cash from a customer. c. Purchase of merchandise on credit

> Refer to P2-5. Dell Inc., headquartered in Austin, Texas, is the global leader in selling computer products and services. The following is Dell’s (simplified) balance sheet from a recent year. Assume that the following transactions (

> A company is facing a class-action lawsuit in the upcoming year. It is possible, but not probable, that the company will have to pay a settlement of approximately $2,000,000. How would this fact be reported in the financial statements to be issued at the

> Company X has borrowed $100,000 from the bank to be repaid over the next five years, with payments beginning next month. Which of the following best describes the presentation of this debt in the balance sheet as of today (the date of borrowing)? a. $10

> Which of the following best describes accrued liabilities? a. Long-term liabilities. b. Current amounts owed to suppliers of inventory. c. Current liabilities to be recognized as revenue in a future period. d. Current amounts owed to various parties

> The university spirit organization needs to buy a car to travel to football games. A dealership in Lockhart has agreed to the following terms: $4,000 down plus 20 monthly payments of $750. A dealership in Leander will agree to a $1,000 down payment plus

> What is the present value factor for an annuity of five periods and an interest rate of 10 percent? a. 1.6105 b. 6.1051 c. 3.7908 d. 7.7217

> What is the present value of 10 equal payments of $15,000 with an interest rate of 10 percent?

> The balance sheet for Stevenson Corporation reported the following: quick assets, $20,000; noncurrent assets, $240,000; total assets, $360,000; noncurrent liabilities, $176,000; total stockholders’ equity, $94,000. Compute Stevenson’s quick ratio and wor

> For each of the following items, specify whether the information would be found in the balance sheet, the income statement, the statement of cash flows, the notes to the statements, or not at all. 1. The amount of working capital. 2. The total amount of

> Complete the following matrix by entering either debit or credit in each cell: Item Increase Decrease Revenues Losses Gains Expenses

> Kieso Company borrowed $600,000 on a 90-day note at 11 percent interest. The money was borrowed for 30 days in 2011 and 60 days in 2012; the note and interest were to be paid upon maturity in 2012. How much interest expense, if any, would be reported in

> You plan to retire in 10 years. Would it be better for you to save $27,500 a year for the last five years before retirement or $16,250 for each of the 10 years? You are able to earn 9 percent interest on your investments.

> Dell Inc., headquartered in Austin, Texas, is the global leader in selling computer products and services. The following is Dell’s (simplified) balance sheet from a recent year. Assume that the following transactions (in millions of d

> Refer to the financial statements of Urban Outfitters in Appendix C at the end of this book. Required: 1. Use the company’s balance sheet to determine the amounts in the accounting equation (A = L + SE) as of January 31, 2009. 2. If the company were

> As a result of a slowdown in operations, Global Stores is offering employees who have been terminated a severance package of $118,000 cash, another $129,000 to be paid in one year, and an annuity of $27,500 to be paid each year for six years beginning in

> What is the present value of $500,000 to be paid in 10 years with an interest rate of 8 percent?

> Buzz Coffee Shops is famous for its large servings of hot coffee. After a famous case involving McDonald’s, the lawyer for Buzz warned management (during 2011) that it could be sued if someone were to spill hot coffee and be burned: “With the temperature

> Ospry, Inc., has a quick ratio of 0.50 and working capital in the amount of $1,240,000. For each of the following transactions, determine whether the quick ratio and working capital will increase, decrease, or remain the same. a. Paid accounts payable i

> Wygant Corporation borrowed $290,000 on October 1, 2011. The note carried a 10 percent interest rate with the principal and interest payable on May 1, 2012. Prepare the journal entry to record the note on October 1. Prepare the adjusting entry to record

> You want a retirement fund of $125,000 when you retire in six years. You are able to earn 8 percent on your investments. How much should you deposit each year to build the retirement fund that you want?

> What four criteria must normally be met for revenue to be recognized under accrual basis accounting?

> On January 1, 2011, you deposited $6,000 in a savings account. The account will earn 10 percent annual compound interest, which will be added to the fund balance at the end of each year. Required (round to the nearest dollar): 1. What will be the balan

> You have the chance to purchase the royalty interest in a gas well in the Barnett Shale. Your best estimate is that the net royalty income will average $25,000 per year for seven years. There will be no residual value at that time. Considering the uncert

> Smith Company has purchased a new office building. The company has agreed to pay the developer $55,000 annually for 9 years. Using present value techniques, determine the value that should be recorded for the building when it is purchased. Assume a 6 per

> An investment will pay $15,000 at the end of each year for eight years and a one-time payment of $120,000 at the end of the eighth year. Determine the present value of this investment using a 7 percent interest rate.