3.99 See Answer

Question: In this chapter, we evaluated shares of

In this chapter, we evaluated shares of common equity in PepsiCo using the value-to-book approach, market multiples, price differentials, and reverse engineering. The Coca-Cola Company competes directly with PepsiCo. The data in Chapter 12 Exhibits 12.14–12.16 include the actual amounts for 2012 and projected amounts for Year +1 to Year +6 for the income statements, balance sheets, and statements of cash flows for Coca-Cola. In Problem 14.22, you evaluated shares of common equity in Coca-Cola using the value-to-book approach, market multiples, price differentials, and reverse engineering.
In this chapter, we evaluated shares of common equity in PepsiCo using the value-to-book approach, market multiples, price differentials, and reverse engineering. The Coca-Cola Company competes directly with PepsiCo. The data in Chapter 12 Exhibits 12.14–12.16 include the actual amounts for 2012 and projected amounts for Year +1 to Year +6 for the income statements, balance sheets, and statements of cash flows for Coca-Cola. In Problem 14.22, you evaluated shares of common equity in Coca-Cola using the value-to-book approach, market multiples, price differentials, and reverse engineering.



REQUIRED
a. Prepare an exhibit using the data and analyses for PepsiCo from this chapter and the data and analyses for Coca-Cola from the previous problem that will allow you to compare these two competitors on the following dimensions:
(1) Cost of equity capital (RE)
(2) ROCE for 2012
(3) Projected ROCE for Year +1
(4) Book value of common shareholders’ equity
(5) Market value of common shareholders’ equity
(6) Intrinsic value of common shareholders’ equity
(7) Value-to-book ratio
(8) Market-to-book ratio
(9) Value-earnings ratio (using Year +1 projected comprehensive income)
(10) Price-earnings ratio (using Year +1 projected comprehensive income)
(11) Value-earnings ratio (using 2012 reported earnings per share)
(12) Price-earnings ratio (using 2012 reported earnings per share)
(13) Price differential (on a per-share basis; assume 1% long-run growth for both firms for this part of the problem)
(14) Price differential as a percentage of risk-neutral value (assume 1% long-run growth for both firms for this part of the problem)
(15) Reverse engineer share price to solve for implied expected rate of return (assuming 3% long-run growth)
(16) Reverse engineer share price to solve for implied long-run growth (assuming the cost of equity capital as the discount rate)
b. What inferences can you draw from these comparisons about the valuation of PepsiCo versus Coca-Cola? In the chapter, we concluded that PepsiCo shares were underpriced by roughly 25% in the market at the end of 2012. In the previous problem, you determined whether Coca-Cola was under- or overpriced. Are the comparisons here consistent with your previous conclusions regarding both PepsiCo and Coca-Cola shares at the end of 2012? Explain.

In this chapter, we evaluated shares of common equity in PepsiCo using the value-to-book approach, market multiples, price differentials, and reverse engineering. The Coca-Cola Company competes directly with PepsiCo. The data in Chapter 12 Exhibits 12.14–12.16 include the actual amounts for 2012 and projected amounts for Year +1 to Year +6 for the income statements, balance sheets, and statements of cash flows for Coca-Cola. In Problem 14.22, you evaluated shares of common equity in Coca-Cola using the value-to-book approach, market multiples, price differentials, and reverse engineering.



REQUIRED
a. Prepare an exhibit using the data and analyses for PepsiCo from this chapter and the data and analyses for Coca-Cola from the previous problem that will allow you to compare these two competitors on the following dimensions:
(1) Cost of equity capital (RE)
(2) ROCE for 2012
(3) Projected ROCE for Year +1
(4) Book value of common shareholders’ equity
(5) Market value of common shareholders’ equity
(6) Intrinsic value of common shareholders’ equity
(7) Value-to-book ratio
(8) Market-to-book ratio
(9) Value-earnings ratio (using Year +1 projected comprehensive income)
(10) Price-earnings ratio (using Year +1 projected comprehensive income)
(11) Value-earnings ratio (using 2012 reported earnings per share)
(12) Price-earnings ratio (using 2012 reported earnings per share)
(13) Price differential (on a per-share basis; assume 1% long-run growth for both firms for this part of the problem)
(14) Price differential as a percentage of risk-neutral value (assume 1% long-run growth for both firms for this part of the problem)
(15) Reverse engineer share price to solve for implied expected rate of return (assuming 3% long-run growth)
(16) Reverse engineer share price to solve for implied long-run growth (assuming the cost of equity capital as the discount rate)
b. What inferences can you draw from these comparisons about the valuation of PepsiCo versus Coca-Cola? In the chapter, we concluded that PepsiCo shares were underpriced by roughly 25% in the market at the end of 2012. In the previous problem, you determined whether Coca-Cola was under- or overpriced. Are the comparisons here consistent with your previous conclusions regarding both PepsiCo and Coca-Cola shares at the end of 2012? Explain.

In this chapter, we evaluated shares of common equity in PepsiCo using the value-to-book approach, market multiples, price differentials, and reverse engineering. The Coca-Cola Company competes directly with PepsiCo. The data in Chapter 12 Exhibits 12.14–12.16 include the actual amounts for 2012 and projected amounts for Year +1 to Year +6 for the income statements, balance sheets, and statements of cash flows for Coca-Cola. In Problem 14.22, you evaluated shares of common equity in Coca-Cola using the value-to-book approach, market multiples, price differentials, and reverse engineering.



REQUIRED
a. Prepare an exhibit using the data and analyses for PepsiCo from this chapter and the data and analyses for Coca-Cola from the previous problem that will allow you to compare these two competitors on the following dimensions:
(1) Cost of equity capital (RE)
(2) ROCE for 2012
(3) Projected ROCE for Year +1
(4) Book value of common shareholders’ equity
(5) Market value of common shareholders’ equity
(6) Intrinsic value of common shareholders’ equity
(7) Value-to-book ratio
(8) Market-to-book ratio
(9) Value-earnings ratio (using Year +1 projected comprehensive income)
(10) Price-earnings ratio (using Year +1 projected comprehensive income)
(11) Value-earnings ratio (using 2012 reported earnings per share)
(12) Price-earnings ratio (using 2012 reported earnings per share)
(13) Price differential (on a per-share basis; assume 1% long-run growth for both firms for this part of the problem)
(14) Price differential as a percentage of risk-neutral value (assume 1% long-run growth for both firms for this part of the problem)
(15) Reverse engineer share price to solve for implied expected rate of return (assuming 3% long-run growth)
(16) Reverse engineer share price to solve for implied long-run growth (assuming the cost of equity capital as the discount rate)
b. What inferences can you draw from these comparisons about the valuation of PepsiCo versus Coca-Cola? In the chapter, we concluded that PepsiCo shares were underpriced by roughly 25% in the market at the end of 2012. In the previous problem, you determined whether Coca-Cola was under- or overpriced. Are the comparisons here consistent with your previous conclusions regarding both PepsiCo and Coca-Cola shares at the end of 2012? Explain.

In this chapter, we evaluated shares of common equity in PepsiCo using the value-to-book approach, market multiples, price differentials, and reverse engineering. The Coca-Cola Company competes directly with PepsiCo. The data in Chapter 12 Exhibits 12.14–12.16 include the actual amounts for 2012 and projected amounts for Year +1 to Year +6 for the income statements, balance sheets, and statements of cash flows for Coca-Cola. In Problem 14.22, you evaluated shares of common equity in Coca-Cola using the value-to-book approach, market multiples, price differentials, and reverse engineering.



REQUIRED
a. Prepare an exhibit using the data and analyses for PepsiCo from this chapter and the data and analyses for Coca-Cola from the previous problem that will allow you to compare these two competitors on the following dimensions:
(1) Cost of equity capital (RE)
(2) ROCE for 2012
(3) Projected ROCE for Year +1
(4) Book value of common shareholders’ equity
(5) Market value of common shareholders’ equity
(6) Intrinsic value of common shareholders’ equity
(7) Value-to-book ratio
(8) Market-to-book ratio
(9) Value-earnings ratio (using Year +1 projected comprehensive income)
(10) Price-earnings ratio (using Year +1 projected comprehensive income)
(11) Value-earnings ratio (using 2012 reported earnings per share)
(12) Price-earnings ratio (using 2012 reported earnings per share)
(13) Price differential (on a per-share basis; assume 1% long-run growth for both firms for this part of the problem)
(14) Price differential as a percentage of risk-neutral value (assume 1% long-run growth for both firms for this part of the problem)
(15) Reverse engineer share price to solve for implied expected rate of return (assuming 3% long-run growth)
(16) Reverse engineer share price to solve for implied long-run growth (assuming the cost of equity capital as the discount rate)
b. What inferences can you draw from these comparisons about the valuation of PepsiCo versus Coca-Cola? In the chapter, we concluded that PepsiCo shares were underpriced by roughly 25% in the market at the end of 2012. In the previous problem, you determined whether Coca-Cola was under- or overpriced. Are the comparisons here consistent with your previous conclusions regarding both PepsiCo and Coca-Cola shares at the end of 2012? Explain.
REQUIRED a. Prepare an exhibit using the data and analyses for PepsiCo from this chapter and the data and analyses for Coca-Cola from the previous problem that will allow you to compare these two competitors on the following dimensions: (1) Cost of equity capital (RE) (2) ROCE for 2012 (3) Projected ROCE for Year +1 (4) Book value of common shareholders’ equity (5) Market value of common shareholders’ equity (6) Intrinsic value of common shareholders’ equity (7) Value-to-book ratio (8) Market-to-book ratio (9) Value-earnings ratio (using Year +1 projected comprehensive income) (10) Price-earnings ratio (using Year +1 projected comprehensive income) (11) Value-earnings ratio (using 2012 reported earnings per share) (12) Price-earnings ratio (using 2012 reported earnings per share) (13) Price differential (on a per-share basis; assume 1% long-run growth for both firms for this part of the problem) (14) Price differential as a percentage of risk-neutral value (assume 1% long-run growth for both firms for this part of the problem) (15) Reverse engineer share price to solve for implied expected rate of return (assuming 3% long-run growth) (16) Reverse engineer share price to solve for implied long-run growth (assuming the cost of equity capital as the discount rate) b. What inferences can you draw from these comparisons about the valuation of PepsiCo versus Coca-Cola? In the chapter, we concluded that PepsiCo shares were underpriced by roughly 25% in the market at the end of 2012. In the previous problem, you determined whether Coca-Cola was under- or overpriced. Are the comparisons here consistent with your previous conclusions regarding both PepsiCo and Coca-Cola shares at the end of 2012? Explain.





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Ex hibit 12.14 The Coca Cola Company In come Statements for 2010 through 2012 (Actual) and Year +1 through Year +6 (Projected) (amo unts in millions; allow for rounding) (Problem 12.16) Actuals Foreasts 2010 2011 2012 Year +1 Year +2 Year +3 Year +4 Year +5 Year +6 $ 35,119 $46,542 $48,017 $50418 $ 52,939 $55,586 $ 58,365 $61,283 $63,122 (12693) $ 22,426 $ 28,327 S 28,964 $ 30,251 $ 31,763 $ 33,351 $ 35019 $36,770 $ 37,873 Revenues (23,346 Cast of goods sold Grass Profit (18,215) (19053) (20,167) (21,175) (22,234) (24513) (25,249 Selling general and admin. expenses Other openting expenses Operating Profit (13,194 (17,422) (17738) (18655) (19,587) (20,567) (21,595) 22675) (23,355) (584) (447) $ 8413 $ 10,173 $ 10,779 $1,092 471 819 (732) (504) (529) (556) $ 12,229 $ 12840 $13,482 412 (1,065) 945 (613) (63 1) $ 13,887 461 $ 11647 483 (417) 360 (978) 430 (1,125) Interest income 317 396 448 73) (397) (1,006 Interest expense Income from equity affiliates Other income (1,188) 1,041 (1,223) 1,073 1025 690 819 857 900 992 5,185 $29 137 $ 14207 $ 11,458 $11809 $ 11,330 $ 11,936 $ 12,521 $ 13,137 $13,784 $ 14,197 (2745) $11,837 $ 8646 $ 9,086 S 8,724 $ 9,191 $ 9,641 $ 10,115 $10613 Income before Tax (2370) (2,812) 2723) (2,880) Income tax expense Net Income 3,265) $ 10,932 (2,600) (3,021) (3,170) Net income attributable to (S0) (62) (67) (57) (57) (57) (57) (57) (58) noncontrolling interests Net Income Attributa ble to Common Shareholders $11,787 $ 8584 $ 9,019 $ 8668 $ 9,134 S 9,585 $ 10,058 $10557 $ 10,873 Other comprehensive (1,265) $11,116 $ 7,319 income items 771) (611) Comprehensive Income 8,408 S 8668 $ 9,134 $ 9,58S $ 10,058 $10557 $ 10,873 Source for Actus: The Coa Cola Company, Fom 10K br the Rical Yer Ended December 31, 2012 Exhibit 12.15 The Coca-Cola Company Balance Sheets for 2010 through 2012 (Actual) and Year +1 through Year +6 (Projected) (amounts in millions allow for rounding) (Problem 12.16) Actuals Foreca sts 2010 2011 2012 Year +1 Year +2 Year +3 Year +4 Year +5 Year +6 ASSETS $ 8,517 $ 12,803 $ 8,442 $ 11,050 $ 11,603 $ 12,183 $ 12,792 $ 13,432 $ 13,835 9,683 6,399 Cash and cash equivalents Marketable securities 2,820 1,232 8,109 8,352 8,603 8,861 9,127 5,916 9,401 Accounts receivable (net) 4,430 4,920 4,759 5,111 5,366 5,635 6,212 Inventories 2,650 3,092 3,264 3,370 3,539 3,716 3,902 4,097 4,220 Prepaid expenses and other current assets 3,162 3,450 2,781 2,920 3,066 3,219 3,380 3,549 3,656 Assets held for sale 2,973 Curent Assets $ 21,579 $ 25,497 $ 30,328 $ 30,804 $ 32,177 $ 33,614 $ 35,118 $ 36,691 $ 37,792 Long-term investments in affiliates Property, plant & equipment (at cost) 7,585 8,374 10,448 10,970 11,519 12,095 12,700 13,335 13,735 21,706 23,151 23,486 26,486 29,636 32,944 36,416 40,063 41,265 Accumulated depreciation (6,979) (8,212) (9,010) (10,945) (13,111) (15,518) (18,180) (21,107) (21,740) Amortizable intangible assets (net) 750 1,377 11,665 13,867 1,250 12,219 14,200 1,150 1,050 950 850 650 670 Goodwill 12,255 13,932 12,868 13,511 14,187 16,128 4,150 14,896 15,641 16,110 Other nonamortizable intangibles 14,629 15,360 16,934 17,781 18,315 Other noncurent assets 4,713 2,121 $72,921 $79,974 $86,174 $ 89,626 $ 93,995 $98,449 З495 3,585 3,764 3,952 4,358 $102,992 $107,629 4,575 Total Assets $1 10,857 (Continued) Actuals Forecasts 2010 2011 2012 Year +1 Year +2 Year +3 Year +4 Year +5 Year +6 LIABILITIES $ 1,887 $ 2,172 $ 1,969 $ 2,222 $ 2,339 $ 2,456 $ 2,579 $ 2,708 $ Accounts payable-trade Current accrued liabilities 2,789 6,972 6,837 6,711 16,297 7,047 7,399 7,769 8,157 8,565 8,822 21,987 Notes payable and short-term debt Current maturities of long-term debt Income taxes payable Liabilities of segments held for sale 8,100 12,871 17,113 18,118 1,753 19,158 20,233 21,347 1,276 2,041 1,577 1,656 1,854 1,958 2,066 2,128 273 362 471 448 470 492 515 538 554 796 Current Liabilities $ 18,508 $ 24,283 $ 27,821 $ 28,485 $ 30,079 $ 31,729 $ 33,442 $ 35,223 $ 36,280 Long-term debt Deferred tax liabilities-noncurrent Other noncurrent liabilities 14,041 13,656 14,736 15,474 16,383 17,323 18,295 19,302 19,881 4,261 4,694 4,981 5,181 5,433 5,690 5,953 6,221 6,979 6,408 4,794 5,420 5,468 5,741 6,028 6,330 6,646 7,188 Total Liabilities $41,604 $48,053 $ 53,006 $54,881 $ 57,923 $61,072 $ 64,337 $ 67,725 $ 69,757 SHAREHOLDERS' EQUITY Common stock + paid-in capital Retained earnings Accum. other comprehensive income (loss) $ 10,937 $ 12,092 $ 13,139 $ 13,665 $ 14,331 $ 15,011 $ 15,703 $ 16,410 $ 16,902 49,278 53,621 58,045 62,369 66,917 71,688 76,695 81,950 84,409 (1,450) (2,774) (3,385) (3,385) (3,385) (3,385) 3,385) (3,385) (3,385) Treasury stock Common Shareholders' Equity $ 31,003 $ 31,635 $ 32,790 $ 34,367 $ 35,693 $ 36,999 $ 38,277 $ 39,525 (27,762) 31,304) (35,009) (38,283) (42,170) (46,315) (50,737) (55,450) (57,215) 40,711 Noncontrolling interests Total Equity 314 286 378 378 378 378 378 378 389 $31,317 $31,921 $33,168 $34,745 $ 36,071 $37,377 $ 38,655 $ 39,903 $72,921 $79,974 $86,174 $ 89,626 $93,995 $98,449 $102,992 $107,629 $ 41,100 $110,857 Total Liabilities and Equities Source for Actuals: The Coca-Cola Company, Fom 10-K for the Fsal Year Ended December 31, 2012 Exhibit 12.16 The Coca-Cola Company Projected Implied Statements of Cash Flows for Year +1 through Year +6 (amounts in millions allow for rounding) (Problem 12.16) Forecasts Year +1 Year +2 Year +3 Year +4 Year +5 Year +6 IMPLIED STATEMENT OF CASH FLOWS $ 9,151 $ 8,705 1,935 (352) (106) (139) 253 336 (23) $ 9,600 2,407 (268) (177) (153) $10,071 $10,567 2,928 (296) (195) (169) 129 408 23 268 Net Income $10,884 Add back depredation expense (net) (Increase) Decrease in receivables (net) (Increase) Decrease in inventories (Increase) Decrease in prepaid expenses Increase (Decrease) in accounts payable-trade Increase (Decrease) in current accrued liabilities Increase (Decrease) in income taxes payable Net change in deferred tax assets and liabilities Increase (Decrease) in other nonaurrent liabilities Cash flows from assets/liabilities of segment sold Net Cash Flows from Operations 2,166 (256) (169) (146) 117 352 22 2,661 (282) (1 86) (161) 123 388 23 263 316 633 (186) (123) (106) 117 81 370 22 257 16 187 200 253 257 273 287 301 332 209 2,177 $13,259 $11,778 $12,476 $13,217 $13,995 $11,852 (Increase) Decrease in prop, plant, & equip, at cost (Increase) Decrease in marketable securities (Increase) Decrease in investment securities (Increase) Decrease in amortizable intangible assets (net) (Increase) Decrease in goodwill and nonamort. intang. (3,000) (243) (522) (3,150) (251) (549) 100 (1,375) (3,308) (258) (576) (3,473) (266) (605) 100 (1,516) (208) $ (5,967) 3,647) (274) (635) (1,202) (282) (400) (20) (1,003) (137) 3 (3,043) 100 100 100 (Increase) Decrease in other non-current assets Net Cash Flows from Investing (1,309) (179) 3 (5,154) (188) 3 (5412) (1,444) (198) 3 (5,683) (1,592) (218) 3(6,265 1,180 973 693 Increase (Decrease) in short-term debt 895 1,103 909 1,140 940 1,221 1,007 707 702 Increase (Decrease) in long-term debt Increase (Decrease) in common stock + paid-in capital Increase (Decrease) in accum. OCI and other equity adjs. Increase (Decrease) in treasury stock 738 579 526 666 679 492 (3,274) (4,324) (57) (3,887) (4,547) (57) (4,145) (4,77 1) (57) (4,422) (5,007) (57) (4,713) (5,255) (57) (1,765) (8,367) (47) Dividends Dividends to noncontrolling interests Net Cash Flows from Finandng Net Change in Cash $(5,496) $ 2,608 $ (5,813) $ (6,214) $ (6,641) 609 $ (7,091) $ (8405) $ 553 $ 580 640 403


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> Dan, a self-employed individual taxpayer, prepared his own income tax return for the past year and has asked you to check it for accuracy. Your review indicates that Dan failed to claim certain business entertainment expenses. a. Will the correction of t

> Explain why market-to-book valuation multiples demonstrate less variance over time and across firms than do price-earnings valuation multiples.

> Identify three economic factors that will drive a firm’s price-earnings ratio to decrease over time. Identify three accounting factors that will drive a firm’s price-earnings ratio down in a given period.

> Identify three economic factors that will drive a firm’s price-earnings ratio to be higher than that of other firms in the same industry. Identify three accounting factors that will drive a firm’s price-earnings ratio in a given period to be higher than

> In practice, it is common to observe price-earnings ratios measured as current period price divided by trailing-twelve-months (or most recent annual) earnings per share. Identify and explain three potential flaws inherent in this measurement of the price

> In conceptual terms, explain the value-earnings ratio. Explain the difference between the value-earnings ratio and the price-earnings ratio. What is the critical assumption about future earnings in both the value-earnings and price-earnings ratio?

> Identify three economic factors that will drive a firm’s value-to-book ratio to decrease over time. Identify three accounting factors that will drive a firm’s value-to-book ratio to decrease over time.

> Identify three economic factors that will drive a firm’s value-to-book ratio to be higher than that of other firms in the same industry. Identify three accounting factors that will drive a firm’s value-to-book ratio to be higher than that of other firms

> We projected financial statements for Walmart Stores for Years þ1 through +5. The data in Chapter 12 Exhibits 12.17–12.19 include the actual amounts for 2012 and the projected amounts for Year +1 to Year +5 for the income

> Explain the implications of a value to-book ratio that is greater than the market-to-book ratio. Explain the implications of a value to-book ratio that is less than the market-to-book ratio.

> The Coca-Cola Company is a global soft-drink beverage company that is a primary and direct competitor with PepsiCo. The data in Chapter 12 Exhibits 12.14–12.16 include the actual amounts for 2012 and projected amounts for Year +1 to Yea

> In 2000, Enron enjoyed remarkable success in the capital markets. During that year, Enron’s shares increased in value by 89%, while the S&P 500 index fell by 9%. At the end of 2000, Enron’s shares were trading at roughly $83 per share and all of the sell

> This problem explores the sensitivity of the value-earnings and value-to-book models to changes in underlying assumptions. We recommend that you design a computer spreadsheet to perform the calculations, particularly for the value-to-book ratio. REQUIRE

> Exhibit 14.12 presents data on market-to-book ratios, ROCE, the cost of equity capital, and price-earnings ratios for seven pharmaceutical companies. (Note that price-earnings ratios for these firms typically fall in the 30–35 range.) E

> Problem 13.18 and Exhibit 13.7 in Chapter 13 present selected hypothetical data from projected financial statements for Steak ‘n Shake for Year +1 to Year +11. The amounts for Year +11 reflect a long-term growth assumption of 3%. The co

> Using the evidence presented in Exhibit 14.10, describe the extent to which the market is efficient with respect to quarterly earnings surprises during the 60 trading days prior to quarterly earnings announcements. Using the evidence presented in Exhibit

> Explain the role of analysts in increasing capital market efficiency.

> What does market efficiency mean? What does market efficiency not mean? Explain how market efficiency relates to the amount of information that affects share prices and the speed with which information affects share prices.

> Explain reverse engineering of share prices in conceptual terms. How does reverse engineering of share prices enable an analyst to infer (or deduce) the assumptions that the capital markets appear to impound in share price?

> What does a price differential measure? How does a price differential relate to risk?

> In Integrative Case 10.1, we projected financial statements for Starbucks for Years +1 through +5. In this portion of the Starbucks Integrative Case, we use the projected financial statements from Integrative Case 10.1 and apply the techniques in Chapter

> Each column presents financial information taken from one of four different companies, with one or more items of data missing. Required: Use your understanding of the relationships among financial statements and financial statement items to find the mi

> Parker Renovation Inc. renovates historical buildings for commercial use. During 2019, Parker had $763,400 of revenue from renovation services and $5,475 of interest income from miscellaneous investments. Parker incurred $222,900 of wages expense, $135,0

> Information for TTL Inc. is given below. Required: Use the relationships in the balance sheet, income statement, and retained earnings statement to determine the missing values. Total assets at the beginning of the year S (a) Total assets at the en

> At the beginning of 2019, Huffer Corporation had total assets of $232,400, total liabilities of $94,200, common stock of $50,000, and retained earnings of $88,200. During 2019, Huffer had net income of $51,750, paid dividends of $10,000, and issued addit

> Carson Corporation reported the following amounts for assets and liabilities at the beginning and end of a recent year. Required: Calculate Carson’s net income or net loss for the year in each of the following independent situations: 1.

> Data from the financial statements of four different companies are presented in separate columns in the table below. Each column has one or more data items missing. Required: Use your understanding of the relationships among the financial statement item

> The following information relates to Ashton Appliances for 2019. Accounts payable $ 16,800 Income taxes expense $ 16,650 Accounts receivable 69,900 Income taxes payable 12,000 Accumulated depreciation (building) 104,800 Insurance expense 36,

> The table below presents the retained earnings statements for Bass Corporation for 3 successive years. Certain numbers are missing. Required: Use your understanding of the relationship between successive retained earnings statements to calculate the miss

> Dittman Expositions has the following data available: Dividends, 2019 $ 10,250 Retained earnings, 12/31/2018 $ 20,900 Dividends, 2020 12,920 Revenues, 2019 407,500 Expenses, 2019 382,100 Revenues, 2020 451,600 Expenses, 2020 418,600 Required

> The following information for Rogers Enterprises is available at December 31, 2019, and includes all of Rogers’ financial statement amounts except retained earnings: Accounts receivable $72,920 Property, plant, and equipment $ 90,000 Cash 13,240

> What types of questions are answered by the financial statements?

> Each column presents financial information taken from one of four different companies, with one or more items of data missing. Required: Use your understanding of the relationships among financial statements and financial statement items to determine t

> Powers Wrecking Service demolishes old buildings and other structures and sells the salvaged materials. During 2019, Powers had $425,000 of revenue from demolition services and $137,000 of revenue from salvage sales. Powers also had $1,575 of interest in

> Information for Beethoven Music Company is given below. Total assets at the beginning of Equity at the beginning of the year $ (b) the year $145,200 Equity at the end of the year 104,100 Total assets at the end of the year (a) Divid

> Which of the following statements is true? a. The auditor’s opinion is typically included in the notes to the financial statements. b. The notes to the financial statements are an integral part of the financial statements that clarify and expand on the i

> Which of the following sentences regarding the statement of cash flows is false? a. The statement of cash flows describes the company’s cash receipts and cash payments for a period of time. b. The statement of cash flows reconciles the beginning and endi

> Which of the following statements concerning retained earnings is true? a. Retained earnings is the difference between revenues and expenses. b. Retained earnings is increased by dividends and decreased by net income. c. Retained earnings represents accu

> For the most recent year, Grant Company reported revenues of $182,300, cost of goods sold of $108,800, inventory of $8,500, salaries expense of $48,600, rent expense of $12,000, and cash of $12,300. What was Grant’s net income? a. $9,400 b. $12,900 c. $2

> Which of the following statements regarding the income statement is true? a. The income statement provides information about the profitability and growth of a company. b. The income statement shows the results of a company’s operations at a specific poin

> Refer to the information for Marker above. What is Marker’s stockholders’ equity? a. $7,500 b. $17,500 c. $19,100 d. $25,000

> Refer to the information for Marker above. What is the total of Marker’s current assets? a. $12,100 b. $13,700 c. $14,500 d. $25,000

> Name and briefly describe the purpose of the four financial statements.

> Which of the following is not shown in the heading of a financial statement? a. The title of the financial statement b. The name of the company c. The time period covered by the financial statement d. The name of the auditor

> What type of questions do the financial statements help to answer? a. Is the company better off at the end of the year than at the beginning of the year? b. What resources does the company have? c. For what did a company use its cash during the year? d.

> Which of the following is not one of the four basic financial statements? a. Balance sheet b. Income statement c. Statement of cash d. Auditor’s report

> At December 31, Pitt Inc. has assets of $12,900 and liabilities of $6,300. What is the stockholders’ equity for Pitt at December 31? a. $6,600 b. $6,300 c. $18,100 d. $19,200

> Cam and Anna met during their freshman year of college as they were standing in line to buy tickets to a concert. While waiting in line, the two shared various aspects of their lives. Cam, whose father was an executive at a major record label, was raised

> Refer to the 10-K reports of Under Armour, Inc., and Columbia Sportswear that are available for download from the companion website at CengageBrain.com. Required: Answer the following questions: 1. Describe each company’s business and list some of the m

> Obtain Apple Inc.’s 2016 annual report either through the ‘‘Investor Relations’’ portion of their website (do a web search for Apple investor relations) or go to www.sec.gov and click ‘‘Company Filings Search’’ under ‘‘Filings.’’ Required: Answer the fo

> Lola, the CEO of JB Inc., and Frank, the accountant for JB Inc., were recently having a meeting to discuss the upcoming release of the company’s financial statements. Following is an excerpt of their conversation: Lola: These financial statements don’t s

> Professional ethics guide public accountants in their work with financial statements. Required: Why is ethical behavior by public accountants important to society? Be sure to describe the incentives that public accountants have to behave ethically and u

> Reproduced below are portions of the president’s letter to stockholders and selected income statement and balance sheet data for the Wright Brothers Aviation Company. Wright Brothers is a national airline that provides both passenger se

> Define the terms revenue and expense. How are these terms related?

> Agency Rent-A-Car Inc. rents cars to customers whose vehicles are unavailable due to accident, theft, or repair (‘‘Wheels while your car heals’’). The company has a fleet of more tha

> Which of the following statements regarding business activities is true? a. Operating activities involve buying the long-term assets that enable a company to generate revenue. b. Financing activities include obtaining the funds necessary to begin and ope

> The accounting profession is organized into three major groups: (a) Accountants who work in nonbusiness entities, (b) Accountants who work in business entities, and (c) Accountants in public practice. The periodical literature of accounting includes

> Jim Hadden is a freshman at Major State University. His earnings from a summer job, combined with a small scholarship and a fixed amount per term from his parents, are his only sources of income. He has a new MasterCard that was issued to him the week he

> Which of the following statements is false concerning forms of business organization? a. A corporation has tax advantages over the other forms of business organization. b. It is easier for a corporation to raise large sums of money than it is for a sole

> Decision-makers use accounting information in a wide variety of decisions including the following: 1. Deciding whether or not to lend money to a business 2. Deciding whether or not an individual has paid enough in taxes 3. Deciding whether or not to plac

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