Most airlines offer promotional programs in which passengers accumulate miles over time; when they have earned enough miles, they receive free tickets. In the past, airlines did not make any accounting entries for these free tickets. The free rider merely uses available seats or, on occasion, dis- places a ticketed passenger. The FASB adopted a method of accounting for tickets issued under these programs. It requires that a portion of the fare paid when n passenger in such a program pays for a ticket be deferred until the free ride is used. For example, if a passenger purchases a $200 ticket, a portion, say $20, would not appear as revenue is the airline until the free trip was taken. It would be reported as a liability called unearned revenue between the time when the $20 was received rind the time when the free trip was taken. INSTRUCTIONS: a. Evaluate the accounting standard in terms of the principle of revenue recognition. List the criteria of revenue recognition, and suggest when it would be appropriate to recognize the revenue from a ticket sale. b. United Airlines changed the way it accounts for “frequent flyer’ credits, deferring more of the revenue it recognizes from this program until the service is actually provided. How would this change affect income in the year of the change, and does it appear to be a better application of revenue recognition? Why or why not?
> The pandemic referred to as COVID-19 rocked the whole globe in the spring of 2020. For months at a time, governments issued advisories to practice social distancing by staying at home unless you were involved in an essential activity, such as shopping or
> The operating profits from 2017 to 2019 reported by each of Johnson & Johnson's primary business segments are provided below. Sales numbers for each of the segments are provided in ID5.14 ( dollars in millions). INSTRUCTIONS: a. During 2019, which of
> The following sales information concerning Johnson & Johnson's primary business segments appeared in the company's 2019 SEC Form 10-K (dollars in millions). INSTRUCTIONS: a. Which of the three primary business segments is the largest, and which of th
> Cash flow profiles over a three-year period are provided here from recent financial statements for three well-known companies: Echostar Communications, Walmart, and US Airways (now part of American Airlines). INSTRUCTIONS: Link each profile to one of the
> In the shareholders' equity section of its 2018 and 2019 balance sheets, H&R Block reported accumulated other comprehensive income balances of $(14.3) million and $(20.4) million, respectively. The 2019 income statement reported net income of $423 millio
> The following pages contain the consolidated balance sheets and statements of income and cash flows taken from the 2019 annual report of the retail powerhouse Amazon. INSTRUCTIONS: Analyze the statements by using the ROE model, and identify the factors d
> Many companies selling stock to the public for the first time-initial public offerings (IPOs)-are not yet profitable. According to a report issued by the research firm Sageworks, almost half of the companies listing IPOs are not yet profitable. Amazon is
> The business press follows the movement of stock prices very closely, especially when companies post their earnings announcements. Interestingly, there is no set pattern for how stock prices react to earnings announcements. Sometimes companies report ear
> Financial profiles, expressing the dollar value of financial statement accounts as a percentage of total assets (for balance sheet accounts) and sales (for income statement accounts), are listed from recent financial statements for four well-known compan
> The Wall Started Journal reported that analysts are worried about companies borrowing money to pay dividends and to repurchase outstanding shares of stock. Aircraft parts manufacturer TransDigm Group borrowed $360 million to pay dividends, wh
> The military’s money managers last year made almost $7 trillion in adjustments to their financial ledgers in an attempt to make them add up, the Pentagon’s inspector general said in a report released yesterday. The Pentagon could not show receipts of $2.
> Munich-based automaker BMW switched how it classified certain expenses to match what it anticipates to be the format approved by International Financial Reporting Standards (IFRS). Period, BMW classified these expenses as part of operating profit, and no
> Herbert S. Bailey, Jr., published the following poem in Publishers Weekly (Jan. 13, 1975), calling to mind Edgar Allan Poe’s famous poem The Raven . Though my bottom line is black, I am flat upon my back. My cash flows out and customers pay slow. The gro
> In “Behind the Wave of Corporate Fraud: A Change in How Auditors Work,” the Wall Street Journal detailed several of the recent accounting scandals and the techniques management used to deceive both the auditors and the investing public. The article focus
> The W.T. Grant Company was the nation’s largest retailer until it filed for bankruptcy only one year after it had reported profits of over $20 million for more than ten con6ecuiive years. Yet cash flow provided by operations had started dipping several y
> Refer to the Merck income statement presented at the very beginning of the chapter, and note that the company reported growing profits of $2.4 billion, $6.2 billion, and $9.8 billion in 2017, 2018, and 2019, respectively. Restructuring charges were signi
> In the late 1990s, the Internet explosion sent the share values of well-known Internet companies soaring. Many of these companies took advantage of the high prices by making major share issuances and using the funds as their major source of financing. Ly
> When Campbell Soup purchased the European culinary business from Unilever, the acquisition was funded with available cash and a short-term notes payable. The $920 million purchase 6. Paid suppliers $870,000 for payment of open accounts payable. 7. Sold
> You can review the Disney 2019 SEC Form 10-K by searching for “Disney Annual Report” online. INSTRUCTIONS: Review the Disney Form 10-K, and answer the following questions. a. In terms of the basic accounting equation, explain how Disney accounts for prep
> When Volkswagen AG admitted several years ago that it deceived regulators by rigging exhaust emission results, the company booked a 6.7 billion euro accrued liability to cover future cash payments related to the crisis. Provide the journal entry recorded
> According to The Internal Auditor: In the past, credible financial reports could be produced, audited, and published only on n periodic basis, because the information needed to generate such reports was either impossible too costly to obtain on a
> When Nike completed the acquisition of 100 percent of the common shares of Umbra, it was a leading United Kingdom—based global soccer brand. The acquisition price was approximately $576 million. Umbra prepares its financial statements under IFRS, and the
> When MCI Communications Corporation (now part of Verizon Communications) purchased Satellite Business Systems (SBS) from International Business Machines Corporation (IBM), it issued common stock to IBM, valued at $376 million, and signed a note payable f
> You can review the Disney SEC Form 10-K by searching for “Disney Annual Report” online. INSTRUCTI08S: Review the 2019 SEC Form 10-K of Disney and answer the following questions: a. Briefly describe the operations of Disney and indicate whether it is a ma
> Distinguish managerial accounting from financial accounting and describe how the information provided by the two systems is used differently.
> The SEC accepts IFRS financial statements from non-U.S. companies, while requiring U.S. GAAP from U.S. companies. Comment on the difficulties faced by financial analysts who analyze financial statements to assess the financial condition and performance o
> When Anheuser-Busch Company recognized a $160 million charge on its income statement for the closure of Tampa Breweries, it consisted of a write-down of plant assets of $113.7 million, employee severance costs of $19.4 million, and other disposal costs o
> Based on a survey conducted by two accounting professors, the Wall Street Journal reported that a number of high-level corporate managers indicated that they would choose investments that would boost current net income to meet the expectations of analyst
> In a report to its clients on the implications of the Sarbanes—Oxley Act of 2002, KPMG states that the act is intended to expand corporate governance, increase public confidence in financial reporting information, and strengthen our capital market system
> The following quote was taken directly from the audit report written by PwC on the 2019 financial statements of Kroger. We have audited the accompanying consolidated balance sheets of The Kroger Co. and its subsidiaries (the “Company”) as of February 2,
> Fortune magazine ran an article titled “New Ethics or No Ethics? Questionable Behavior Is Silicon Valley’s Next Big Thing,” which recounts stories of Internet companies that aggressively inflate their net income. In many cases, the actions of these compa
> United Continental Holdings, the parent of United Airlines and Continental Airlines, signed contracts with its major creditors (mostly banks) that require the company to maintain a minimum cash balance of $3.0 billion and a minimum ratio of cash flow to
> In late 2009, General Electric, Vivendi SA, and the cable television company Comcast entered into a complicated transaction to change the ownership of the television and production company NBC Universal. Prior to the transaction, GE owned 80 percent of N
> The huff Street Journal once reported, “For as long as companies have published cash-flow statements, investors have used them to gauge the credibility of earnings. The most closely watched portion of these reports is the part called cash flow from opera
> The following information was taken from the 2019 annual report—statements of cash flows—of United Technologies Corporation (UTC), a diversified manufacturing conglomerate (dollars in millions). INSTRUCTIONS: What does
> The following information was taken from the 2019 annual reports—statements of cash flow f TJ Maxx, Pier One, and Pepsico (dollars in millions). INSTRUCTIONS: Each of these companies shows a different cash flow pattern. Explain what the
> The following excerpt was taken from a financial report of Cummins Engine Company, a manufacturer of heavy-duty truck engines. Loan agreements contain covenants that impose restrictions on the payment of dividends and distributions of stock, require main
> On its 2019 income statement, AT&T reports a 7.2 percent increase in revenue from $152 billion in 2018 to $163 billion in 2019. Yet net income dropped by 28 percent from $19.4 billion to $13.9 billion. Interestingly, a line item on the statement entitled
> Recently, Netflix released its earnings for the first quarter of the year. In the announcement the company highlighted a number of its accomplishments, including: • Surpassing 100 million subscribers using online streaming services • Strong interest in t
> For over a year, Center Energy Corporation, a utility company in Ohio, had negative cash flow from operating activities, caused primarily by the escalating costs of one of its nuclear plants outside Cleveland. Yet the company reported positive earnings a
> Whitney Tilson, a noted analyst, warns investors in an article in The Motley Fool that more than any other type of company, financial companies have immense discretion regarding what earnings to report. The key is the rate of loan losses that they exp
> The annual Form 20-F published by Unilever, which uses IFRS, notes that during a particular year assets were written down by 246 million euros to market value for damaged, obsolete, and lost inventories. It also noted that the market value of certain inv
> The Wall/ Street Journal reported in early 2010 that Citi Bank had acknowledged a series of errors in accounting for the investment in the firm by the U.S. government. These errors overstated the company’s quarterly earnings in 2008 rind 2009, rind were
> Much has been written about the accounting fraud and subsequent bankruptcy of WorldCom. The Baltimore Run reported that the ”fraud was brazen (and) easy to spot. The scheme was not complicated: the company’s financial officers recorded routine maintenanc
> General Electric (GE) depreciates its fixed assets using a method that recognizes a relatively large portion of depreciation in the early years of an asset’s useful life. IBM, on the other hand, uses the straight-line method. INSTRUCTIONS: Briefly descri
> MarketWatch and the news organization Reuters posted the following announcement. Excluding One-Time Expenses. Johnson & Johnson Beats Estimates Johnson & Johnson released its fourth quarter 2006 earnings ... announcing that net income rose to $2.17 billi
> Celadon Trucking filed for bankruptcy in December 2019 due to an inability to cover its debt payments. As part of its agreement to borrow money from lenders, the company has debt restrictions that require it to maintain minimum values of certain financia
> Travel booking websites (like Expedia, Travelocity, and Priceline) make their money by charging a customer an amount (say. $1 ,000) that is larger than the amount they pay the airline or hotel that provides the actual service to the customer (say, $900).
> Merck & Co. declared dividends (dollars in millions) of $5,820 (2019), $5,3 13 (2018), and $5,177 (2017). Cash payments for dividends reported on the statement of cash flows for the three years were $5,695 (2019), $5,172 (2018), and $5,167 (2017). Divide
> You can review the Disney SEC Form 10-K by searching for “Disney Annual Report” online. This chapter listed and defined ten concepts, separated into four basic assumptions, four principles of measurement, and two exceptions. INSTRUCTIONS: Review the Disn
> The FASB requires that companies report the fair value (i.e., net realizable value) of their equity and debt securities on the balance sheets. The FASB described fair value as a market exit price—an estimate of the price an entity would have realized if
> The annual report of KeyCorp, a regional bank holding company headquartered in Cleveland, indicates that short-term investments are listed on the balance sheet at net realizable value. In addition to its short-term investments, Key notes that it also has
> Enron was one of the world’s largest power companies before it went bankrupt in one of the most spectacular financial ligands in history. One aspect of the fraud involved the creation of a separate entity that borrowed a large amount of money and then us
> You can review the Disney SEC Form 10-K by searching for “Disney Annual Report” online. INSTRUCTIONS: Review the Disney 2019 Form 10-K and complete the following: a. Compute net income as a percent of revenues for 2019, 2018, and 2017. b. Compute current
> Up until 2007, non-U.S. firms that published IFRS-based financial statements and wished to raise capital on the U.S. stock markets (e.g., New York Stock Exchange) were required to file with the SEC a Form 20-F that included reconciliations of both net in
> Compute the present value of the payment patterns provided below, given an 8 percent discount rate. a. $50 at the end of Year 2; $100 at the end of Year 5; $80 at the end of Year 8. b. $100 at the end of Years 1, 2, 3, 4; $100 at the end of Year 8. c. $6
> Compute the present value of $10,000 received at the beginning of each year over the following time periods at the following discount rates. Complete the following table:
> Compute the present value of $10,000 received at the end of each year over the following time periods at the following discount rates. Complete the following table:
> The following information was taken from the 2019 annual report of Coca-Cola ( dollar and share amounts in millions): a. At what average price did the company repurchase its shares in 2017? b. At what average price did the company repurchase its shares i
> You are investment analyst for Timken Brothers, a small brokerage firm.
> If $150 were invested at the beginning of each year over the following time periods at the following interest rates, how large a sum could be withdrawn at the end of the final time period? Complete the following table:
> If $150 were invested at the end of each year over the following time periods at the following interest rates, how large a sum could be withdrawn at the end of the final time period? Complete the following table:
> Compute the present value of $10,000 received at the end of the following time periods at the following discount rates. Complete the following table:
> If $150 were invested today, how large a sum could be withdrawn at the end of the following time periods at the following compound interest rates? Complete the following table:
> BC Inc. began operations in early 2018. Summaries of the statements of cash flows for 2020, 2019, and 2018 follow: a. Compute the missing dollar amounts, and briefly comment on the company's cash management policies during the three-year period. b. Does
> Assume that the following financial ratios are calculated for Royals Corporation in 2020: a. What was the return on equity for Royals Corporation in 2020? b. If Royals Corporation keeps all of its other ratios constant in 2021 but increases its capital s
> The following ratios were computed from the financial statements of LBS Products: Use the ROE model to analyze these ratios, and comment on the company's performance from 2018 to 2020.
> The following ratios were computed from the financial statements of INSEAD Incorporated: Use the ROE model to analyze these ratios, and comment on the company's performance from 2018 to 2020.
> Merck, a major pharmaceutical, generated $9.78 billion in net income for the year ended December 31, 2019. 1. The company paid $5.82 billion in dividends during 2019. 2. Merck stock was selling for $73.59 per share on January l , 2019, and for $90.95 per
> The following information refers to the financial records of McDonald's Corporation over a three-year period (dollar amounts in millions except share price). a. Compute dividends declared as a percentage of net income during each of the three years. b. C
> When Radio Shack announced a 2: 1 stock split, the company had 97 million shares outstanding, trading at $100 per share. a. Estimate the number of shares outstanding and market price per share immediately after the split. b. Estimate the company's overal
> At the end of 2020, Montvale Associates borrowed $120,000 from the Bay liner Bank. The debt covenant specified that Montvale's debt/equity ratio could not exceed 1.5: I during the period of the loan. A summary of Montvale's balance sheet after the loan f
> Excerpts from the fiscal 2019 financial report of Cisco Systems, a leading Internet networker, are provided below (dollars in millions). From the information below, compute ROE, ROA, capital structure leverage, profit margin, and total asset turnover for
> Small and Associates, a small manufacturing firm, entered into the following cash transactions during January 2020: 1. Issued 600 shares of stork for $25 each. 2. Sold services for $4,000 cash. 3. Incurred and paid payroll of $ 1,600. 4. Purchased land a
> The following cash T-account for Miller Manufacturing summarizes all the transactions affecting cash during 2020 with a December 3 I closing date. a. Compute the ending cash balance. b. Prepare a statement of cash flows using the direct method.
> The following information was taken from the 2019 annual report of Bristol-Myers Squibb, a world-leading drug company (dollars in millions). Prepare an income statement, balance sheet, and statement of cash flows, and comment on the financial performance
> The following accounts and balances were taken from the records of American Airlines (dollars in millions). Identify each account as an income statement or balance sheet account. Where is each account reflected in the basic accounting equation?
> The Brown Corporation experienced the following financial events on October 10, 2020: 1. The company entered into a new contract with the employees’ union that calls for a $2.00 per hour increase in wages, a longer lunch break, and cost-of-living adjustm
> Assume that Cathedral Enterprises, which is in its first year of operations (i.e., 2020 with a December 31 year end) entered into the following transactions. Show how the six transactions affect the accounting equation, and prepare an income statement, s
> Total each asset, liability, rind shareholders’ equity account in E4.2, and prepare an income statement, a statement of shareholders’ equity, a balance sheet, and a statement of cash flows. Assume that the current year (i.e., 2020) is the company's first
> Tony’s Business is a small retailer that began operations on January 1. 2020. During 2020, the following transactions occurred: 1. Tony contributed $20,000 of his own money to the business. 2. $60,000 in cash was borrowed from the bank. 3. Property, plan
> The following information was taken from the 2019 statement of shareholders' equity of Home Depot (dollars in millions): a. What portion of net income was paid out in dividends during the year? b. Explain how the issuance of shares affected the basic acc
> Excerpts from the financial statements of Dunbar Manufacturing are provided below. a. Compute the payroll payable as of December 3 I , 2019. b. Compute the cash payments for rent during 2020. c. Compute the accounts receivable as of December 31, 2020.
> Condensed balance sheets for 2017 and 2018 and the world’s largest tire company, are as follows (dollars in millions). 2018 income statement for Goodyear, a. Assume that early in 2019 Goodyear is considering the following transactions (
> Consider the same transactions as in E4—1, but this time complete the following chart, using a separate sheet of paper.
> Peters Company was in business for two years, during which time it entered into the following transactions: Year 1. 1. The owners contributed $24.000 cash. 2. At the beginning of the year, rented a warehouse for two years with a prepaid rent payment of $
> Rahal and Watson, a small manufacturing company, entered into the following cash trans- actions during January 2020: 1. Issued 800 shares of common stock for $30 each. 2. Collected $3,900 on outstanding accounts receivable. 3. Paid payroll for the month
> The following journal entries were recorded by Lauren Retailing during the month of July: a. Prepare an income statement and the operating section of a statement of cash flows. b. Explain why net income is not equal to net cash flow from operating activi
> Washington Forest Products began operations on January I, 2020. On December 31, 2020, the company’s accountant ascertains that the following amounts should be reported as expenses on the income statement: A review of the companyâ&
> During 2018, Starbucks purchased fixed assets costing approximately $ 1.8 billion. Assume that the company purchased the assets at the beginning of the year, uses straight-line depreciation, and normally depreciates its equipment over four years. Assume
> The Hurst Corporation pays its employees every Friday for the five-day week just ended. On January 1, 2021, the company paid its employees $70,000 for the week beginning Monday, December 28, 2020. a. Assuming that the employees earned salaries and wages
> Hog Heaven Rib Joint made the following journal entries on December 31, 2020: Place each of the transactions above in one of the following five categories: (1) operating activity cash flow, (2) investing activity cash flow, (3) financing activity cash
> During fiscal 2020, Delta Airlines, which leases most of its aircraft, paid approximately $1.3 billion on its lease contracts-$269 million on financing leases and a little over $1 billion on operating leases. a. How did the lease payments on contracts wi
> Eaton Enterprises made the following adjusting journal entries on December 31, 2020: a. Give a brief explanation for each of the above entries. b. Classify each of the above entries as either a cost expiration adjusting entry or an accrual adjusting entr
> The following cash T-account for Holcomb Manufacturing summarizes n1l ihe transactions affecting cash during 2020. a. Compute the ending cash balance. b. Prepare a statement of cash flows (direct method).
> Ed’s Lawn Service entered into the following transactions during 2020, its first year of operations: 1. Collected $12,000 in cash from shareholders. 2. Borrowed $5,000 cash from a brink. 3. Purchased two parcels of property for a total of $10,00d in cash
> On a separate piece of paper, complete the following chart to show the effect of each transaction on the accounting equation.
> The Atlantic Bears, a major league sports team, began the season with five home games to be played in March. Other financial information follows: • During January and February 2020, the team received $600,000 ($200,00d in January and $400,000 in February
> All large U.S. companies have policies in which all expenditures (i.e., costs) under a certain dollar amount arc expensed. Many of these costs are for assets, items that are useful to the company beyond the period in which they were purchased. a. Explain
> RDP and Brothers purchased a panel truck for $25,000 on January 1, 2020. It estimated the life of the truck is be five years and estimated its value to be zero at the end of the five years, and it will be depreciated by an equal amount in each of the fiv
