Accounting Textbook Solutions - 43

Explain the hierarchy of effects from a retail perspective.
Apply your answer to a new auto

dealer.
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Based on the information in the case, would you consider Best Buy to be a high-performing
retailer? Why or why not?
How would advertising developed specifically for an in-store network differ from traditional
television-based network advertising for Insignia?
What can any retailer learn from this case?
Do you agree that the Christmas creep phenomenon will be a long-term phenomenon? Why or
why not? What do recommend that retailers do?
Make several recommendations for Starbucks based on the data.
What kind of loyalty program(s) should A&F offer? Present details in your answer.
Describe how a conventional supermarket can upgrade its in-store experience.
Discuss the pros and cons of digital coupons versus print-based coupons from a retailer's
perspective.
What other ways could retailers use kiosks in their operations?
Is a retailer's desire to build up its private-label brands an inevitable source of channel conflict?
Explain your answer.
Develop a sales opportunity grid for a supermarket planning to add a Redbox DVD rental
machine to its services mix.
What customer information should Starbucks keep in its retail information system? How could it
use this information?
Present a planogram for a nearby bank.

Comment on NCR's technology evolution.
How can a local beauty salon store try to generate positive publicity?
What are the pros and cons of coupons?
Discuss the advantages and disadvantages of independent stores or small chains that compete
with large chains.
Should the Insignia brand be promoted through over-the-air TV ads, as well as in-store ads? Why
or why not?
How are the terms gap analysis and scenario analysis interrelated?
How can advertising, public relations, personal selling, and sales promotion complement each
other for a retailer?
Visit the Web site of PetsMart (www.petsmart.com) and then comment on its storefront, general
interior, store layout, displays, and checkout counter.
What is the value of the global retail development index?
Develop a purchase motivation product grouping for an online men's apparel retailer.
How could A&F enhance the total retail experience at each of its store brands?
What are the pros and cons of the Gap store brand's broad target market strategy?
Why do many retailers not conduct any form of retail audit? Are these reasons valid? Explain
your answer.
Develop sales promotions for each of the following: a. A nearby regional shopping center. b. A
30-year old restaurant. c. An discount online furniture retailer.
Differentiate between shopper marketing and cooperative advertising.
Note at least five key points to be learned from the data in that table.
What do you think should be done to revitalize the Gap store brand over the next three years?
Discuss the pros and cons of a retailer's use of a standardized versus a non-standardized retail
strategy throughout the world.
Analyze A&F's overall retail strategy, based on the steps discussed in Chapter 3.
What are the attributes of good retail auditing?
Develop five measures of brand awareness that can serve as objectives for Best Buy's advertising
efforts for Insignia products.
Are there any retailers that should not use personal selling? Explain your answer.
Is QuikTrip Park a destination retailer or a parasite? Does your answer differ for its more
traditional locations? Explain your answer.
Describe and analyze eBay's overall merchandising strategy.
Cite five ways in which a gourmet food store can be involved with social media.
Under what circumstances should a disguised audit be used?
Are there any risks to Starbucks' selling its brands in food stores? Explain your answer.
From a retailer's perspective discuss the advantages and disadvantages of consumer-driven

personal technologies?
Which method of promotional budgeting should a small retailer use? A large retailer? Why?
Cite five performance measures commonly used by retailers, and explain what could be learned
by studying each.
Should the retailers at airports care about the concept of balanced tenancy? Why?
Discuss the pros and cons of eBay's huge product assortment to eBay.
Explain how automated retail machines can be best used in human resource management.
Based on the data in Table 4, would you select Redbox for placement in a supermarket? What
are the pros and cons of doing so?
Which stores should not use a curving (free-flowing) layout? Explain your answer.
Describe several tactics that a retailer can use to increase its in-store coupon redemption rate?
Visit the Web sites of Gap, banana republic, and Old Navy. Describe the positioning of each
brand.
Describe the kinds of activities in which retailers can engage to foster their image in this high-
tech era.
List the three main forms of business organization, and describe their advantages and
disadvantages. If you were to consider starting up a lawn-care business for the summer, what
type of business organization might you use?
The balance sheet for Larry's Discount Tire Company shows a book value of stockholders' equity
(book value per share * total shares outstanding) of $23,500,000. Furthermore, the firm's income
statement for the year just ended has net income of $500,000, which is $0.25 per share of
common stock outstanding. The price-ea
What can we learn about a firm from its price-earnings ratio and market-to-book ratio?
What makes preferred stock "preferred"?
What recommendations would you suggest to A&F as it looks to the future?
Last year the commercial real estate firm Kelly and Co., Inc., earned taxable income of $19
million. a. Calculate Kelly's federal income taxes. b. Now calculate Kelly's average and marginal
tax rates.
In the Payday Loans feature on page 129, we examined these short-term, high-interest loans. Go
to the Responsible Lending Organization website at www.responsiblelending.org/payday-
lending/. What are some of their concerns about payday and other small dollar loans? Summarize
their research papers.
Go to Yahoo Finance (finance.yahoo.com), and enter "GOOG" (the ticker symbol for Alphabet,
formerly Google) in the "Enter Symbol(s)" box at the top of the page. What is the price at which
the stock last traded? What is the last trade time and how long ago was that? What is the day's
price range for the stock? What is t
Go to the Market Watch website (www.marketwatch.com), and click on "Sections" then on

"Personal Finance." This is a great resource for information and help in managing your personal
finances. Find an article you like, read it, and write a summary of it. Consider bookmarking this
website-it's one you might want to start
How do cash dividends affect the realized rate of return from investing in shares of common
stock?
The liabilities and stockholders' equity for Campbell Industries are as follows: Accounts
payable .............................................. $ 500,000 Notes payable ...................................................
250,000 Total current liabilities ........................................ $ 750,000 L
Greenwich Industries has forecasted its monthly needs for working capital (net of spontaneous
sources, such as accounts payable) for 2013 as follows: Short-term borrowing (that is, a bank
line of credit) costs the company 10 percent and long-term borrowing (that is, term loans) costs
the company 12 percent. Any funds
Given the following information for Computech, compute the firm's degree of combined
leverage (dollars are in thousands except EPS):
Analyzing a firm's financial condition using its financial statements can be likened to performing
a physical examination. A physician assesses a patient's health by checking temperature, blood
pressure, and other vital signs. What are the vital signs used by the analyst when performing a
financial analysis that is ana
In Regardless of Your Major: Risk and Your Personal Investment Plan on page 224, what are the
four guidelines suggested for analyzing your personal investment decisions?
Go to the Motley Fool website (www.fool.com), and under the tab "Guides," click on
"Retirement." Describe the information available here for planning for your retirement.
If the standard deviation of Company A's stock returns is greater than the standard deviation of
Company B's stock returns, then the beta of Stock A must be greater than the beta of Stock B.
Explain your answer. True or false:

Compare and contrast the notions of weak-form, semi-strong-form, and strong-form market
efficiency.
Gibson Company sales for the year 2013 were $3 million. The firm's variable operating cost ratio
was 0.50, and fixed costs (that is, overhead and depreciation) were $900,000. Its average (and
marginal) income tax rate is 40 percent. Currently, the firm has $2.4 million of long-term bank
loans outstanding at an average
What is a financial intermediary? List and describe the principal types of financial intermediaries
in the U.S. financial markets.
What is a mutual fund, and how does it differ from an exchange-traded fund (ETF)?
Describe the content of the balance sheet and the income statement.
What is the relationship between the geometric average rate of return and compound interest?
What is the "behavioral view" of market efficiency?
Find a business for sale in each of three major industries of your choice, as listed on the Merger
Network Website (www.mergernetwork.com) under "Large U.S. Sellers." Then select the
"dream" business you'd love to own (consulting? restaurant? manufacturing?...).
What do investment banks do in the financial markets?
Following is a scrambled list of accounts from the income statement and balance sheet of
Belmond, Inc.: Inventory ........................................... $ 6,500 Common
stock ..................................... 45,000 Cash ................................................. 16,550 Operating
expenses ...........
Apex Fabricating, Inc., manufactures fenders and other after-market body panels for older
automobiles. At the close of last year, the firm had $10,381,800 in current assets and $4,152,720
in current liabilities. The company's managers want to increase its inventory, which will be
financed using short-term debt. How muc
Educational Toys, Inc. (ETI) has highly seasonal sales and financing requirements. The
company's balance sheet on December 31, 2012, is as follows: ETI has made the following
projections of its asset needs and net additions to retained earnings (that is, equity) for the next 3
years: Assuming that ETI does not plan t

Describe the information contained in Figure 7.2, identifying which securities have performed
the best over long periods of time. Some investors with long investment time horizons invest
exclusively in bonds. Why do you think that is so?
Describe the concept of an expected rate of return as if you were explaining it to your 10-year-
old niece.
Describe the concept of a realized rate of return as if you were explaining it to your grandfather,
who has never had a finance class.
Describe the five-step process used to calculate the variance in the rate of return for an
investment.
Using a search engine, find out how many business bankruptcies occurred in the United States
during the last calendar year. Then try to break down these bankruptcies by type (retail,
restaurant, etc.). Finally, find out whether the trend for bankruptcies (both in absolute number
and as a percentage of businesses in exi
What is the DuPont system of financial statement analysis, and how is it applied to the analysis
of a company's return on equity?
Suppose the British short-term interest rate is 13 percent and the corresponding U.S. rate is 8
percent. Suppose at the same time that the discount on forward pounds is 3 percent per year. Do
these conditions present an opportunity for covered interest arbitrage? If so, what steps should a
trader in New York take? What
In Regardless of Your Major: Using Statistics on page 194, we note that statisticians analyze
data. Moreover, in your statistics class you learned how to describe random outcomes using
statistical measures such as expected value and variance. How does our knowledge of basic
statistics help us evaluate investment opport
Why would we expect the reward-to-risk ratio (slope of the security market line) to be the same
across all risky investments? Assume that you are able to earn 5 percent per unit of risk for
investing in the stock of Company A and 7 percent for investing in Company B. How would you
expect investors to act in light of th
The S&H Construction Company expects its sales next year to total $15,000,000. In addition, the
firm pays taxes at 35 percent and will owe $300,000 in interest expense. Based on last year's
operations, the firm's management predicts that its cost of goods sold will be 60 percent of sales
and its operating expenses will
In very basic terms, describe how profits and cash flow are different.
What did Depression-era humorist Will Rogers mean when he said, "People tell me about the
great return I'm going to get on my investment, but I'm more concerned about the return of my
investment"?
In 2016, RubKing Barbeque Sauce, Inc., purchased a new bottling machine at a cost of $1.5
million. The new machine is expected to last for 10 years, and the firm plans to depreciate it
using straight-line depreciation of $150,000 per year. What is the cash flow consequence of the
purchase for 2016?
From the firm's perspective, how are cash dividends different from interest payments?
The Garcia Industries balance sheet and income statement for the year ended 2012 are as
follows: *The average inventory over the past two years also equals $12.0 million.
_____________________________Income StatementA ___________________________(in
Millions of Dollars) Net sales.....................................
The distribution of financial assets around the world is described in Finance in a Flat World:
Where's the Money Around the World on page 32. What country dominates in terms of the stock
market and total financial assets? Of the United Kingdom, Germany, and France, which country
has the most financial assets, and which
What is the equity risk premium, and how is it calculated?
What are the two types of private equity funds? What does each do with the money it raises from
investors?
What does the term liquidity mean in the context of a firm's financial condition, and what
financial ratios can the analyst use to assess liquidity?
The T. P. Jarmon Company manufactures and sells a line of exclusive sportswear. The firm's
sales were $600,000 for the year just ended, and its total assets exceeded $400,000. The
company was started by Mr. Jarmon just 10 years ago and has been profitable every year since
its inception. The chief financial officer for
A perpetuity pays $1,000 at the end of Year 1, and the annual cash flows grow at a rate of 4
percent per year indefinitely. What is the present value if the appropriate discount rate is 8
percent? If the appropriate discount rate is 6 percent?
The Fisher Apparel Company balance sheet for the year ended 2012 is as follows: a. What is
Fisher's investment in current assets? b. Determine Fisher's working capital investment. c.
Determine Fishers's current ratio. d. Determine Fisher's return on stockholders' equity if its 2012
earnings after tax are $ 10,000 (
According to Principle 2, how should investors decide where to invest their money?
How do you calculate the present value of an annuity? A perpetuity? A growing perpetuity?
What are common-size financial statements, how are they constructed, and why are they useful
to the financial analyst?
Meriwhether Chemicals experienced an increase in its accounts receivable balance for the year
just ended. This will be reported as a use of cash in the firm's cash flow statement. How is it that
an increase in an asset such as accounts receivable represents a use of cash?
Hollywood sound company Merry Sountracks, Inc., is a successful sound and editing firm. Last
year the firm earned $4 million in taxable income (earnings before taxes). Use the corporate tax
rates found in the chapter to calculate the firm's tax liability for the year. What are the firm's
average and marginal tax rates?
The last two years of financial statements for Pamplin, Inc., are as follows: Pamplin, Inc.
Balance Sheets, December 31, 2015 and 2016 ($thousands) Pamplin, Inc. Income Statements for
the Years Ended December 31, 2015 and 2016 a. Compute the following ratios for both 2015 and
2016. Industry Nor
In early 2016, typical terms on a payday loan involved a $15 charge for a two-week payday loan
of $100. Assuming there are 26 fourteen-day periods in a year, what is the effective annual rate
on such a loan?
Why is the volatility or variance in an investment's rate of return a reasonable indication of the
risk of the investment?
When a firm enters into a loan agreement with its bank, it is very common for the agreement to
have a restriction on the minimum current ratio the firm has to maintain. So it is important that
the firm be aware of the effects of its decisions on the current ratio. Consider the situation of
Advance Auto Parts (AAP) in 2
What is the time value of money? Give three examples of how the time value of money might
take on importance in business decisions.
NPR MedTech Corporation is considering acquiring IV Pumps Inc. a relatively small company
that manufactures intravenous pumps for use by hospitals. NPR MedTech believes it can grow
IV Pump's sales by 30 percent per year for the first 5 years after it acquires the firm. In the year
just ended, IV Pumps sales were $1 mil
Marsh Inc. had the following end-of-year stock prices over the last five years and paid no cash
dividends: Time __________________________ __Marsh 1 ............................................ $10
2 ............................................ 12 3 ............................................ 18 4 .......
In Regardless of Your Major: Defined Benefit vs. Defined Contribution Retirement Plans on
page 20, two types of pension plans are discussed. Describe each. Which type is now the
dominant type in use?
What are the limitations of industry-average ratios as a source of benchmarks for a firm's
financial condition? Discuss briefly.
What does Figure 7.4 tell us about how the U.S. stock market has performed when compared to
all the alternatives included in the figure over the period 1988-2015?
In 2016, the Allen Corporation had sales of $65 million, total assets of $42 million, and total
liabilities of $20 million. The interest rate on the company's debt is 6 percent, and its tax rate is
35 percent. The operating profit margin is 12 percent. a. Compute the firm's 2016 net operating
income and net income. b
What can you conclude about the relative risk of investing in the United States versus Japan from
Figure 7.4?
The last two years of financial statements for Blunt Industries are as follows: Blunt Industries
Balance Sheets, December 31, 2015 and 2016 Blunt Industries Income Statements for the Years
Ended December 31, 2015 and 2016 a. Calculate the following financial ratios for 2015 and
2016: b. Evaluate the firm's financ
In Finance in a Flat World on page 105, we noted that differences in accounting standards
around the world can influence financial ratios. Describe how differences in the way goodwill is
treated in the United States versus Hong Kong might influence financial ratio comparisons
between companies in each country.
How does the expected rate of return concept differ from that of the realized rate of return?
Use the following end-of-year price data to answer the following questions for the Harris and
Pinwheel companies. Time ___________ Harris __________ Pinwheel 1 ........................
$10 .................. $20 2 ........................ 8 .................. 32 3 ........................ 12 ................
List and describe the five basic questions used to discuss financial statement analysis.
Explain the three types of business decisions that a financial manager faces.
If a company's beta increased from 1.5 to 4.5, would its expected rate of return triple? Explain
why or why not.
Use the common-size financial statements prepared for Study Problem 4-1 to respond to your
boss's request that you write up your assessment of the firm's financial condition. Specifically,
write up a brief narrative that responds to the following: a. How much cash does Patterson have
on hand relative to its total asse
If GMT Transport Company (from the previous problem) plans to reinvest $1 million of its
earnings back in the firm and pay out the remainder in cash dividends to the firm's shareholders,
what is the total amount of the cash dividend? In Previous problem GMT Transport Company
ended the year with record sales of $18 mi
Who really owns a corporation, and how does that impact the goal of the firm?
GMT Transport Company ended the year with record sales of $18 million. The firm's cost of
goods sold totaled $10.8 million while its operating expenses (including depreciation) totaled $4
million. GMT paid $1.5 million in interest expense and had an income tax liability of $595,000.
What is the firm's net income for th
What is the efficient markets hypothesis? Explain this concept in your own words.
Having just inherited a large sum of money, you are trying to determine how much you should
save for retirement and how much you can spend now. For retirement, you will deposit today
(January 1, 2016) a lump sum in a bank account paying 10 percent compounded annually. You
don't plan on touching this deposit until you r
Your Cash Budget and Personal Savings Ratio on page 102, we defined something called your
personal savings ratio. What is this ratio, and how can you use it when thinking about gaining
control over your personal finances?
Assume you bought a home and took out a 30-year mortgage on it 10 years ago. How would you
determine how much principal on your mortgage you still have to pay off?
What goal do the owners of a for-profit business generally strive for?
Firm income statements document the revenues earned and the expenses incurred in generating
those revenues during the period covered. However, firm expenses are categorized into one of
three groups: cost of goods sold, operating expenses, and interest expense. By deducting each of
these categories of expenses from firm
A perpetuity pays $50,000 at the end of Year 1 and then grows at a rate of 6 percent per year
indefinitely. What is the present value if the rate of interest used to discount the cash flows is 10
percent?
As the newest hire to the financial analysis group at Patterson Printing Company, you have been
asked to perform a basis financial analysis of the company's most recent financial statements.
The 2016 balance sheet and income statement for the Patterson are as follows: Patterson Printing
Company Balance Sheet, Decembe
Why is maximizing a firm's accounting profits not an appropriate goal for the firm?
Appleby Southern Inc. had an accounts payable balance of $5 million at the end of 2015, and
that balance rose to $7 million in 2016. What is the cash flow consequence of this change in
accounts payable?
The cash flow statements for retailing giant Big-Box, Inc., spanning the period 2013-2016 are as
follows: Answer the following questions using the information found in these statements: a.
Does BigBox generate positive cash flow from its operations? b. How much did BigBox invest
in new capital expenditures over thes
What are the three principal sets of players that interact in the financial markets?
In problem 11, assume Frank's Superior Carworks has $1.5 million in debt and 500,000 shares
outstanding. Based on your answer to problem 11, how much would Jeff's Powerwash be willing
to pay for each share of Frank's Superior Carworks?
Describe the relationship between the expected rate of return for an individual investment and
the expected rate of return for a portfolio of several investments.

Google, Inc. (GOOG), is one of the most successful internet firms, and it experienced very rapid
growth in revenues from 2011 through 2014. The cash flow statements for Google, Inc.,
spanning the period are as follows: Answer the following questions using the information found
in these statements: a. Is Goggle genera
The Mitchell Electric Company had net income of $750,000, cash flow from financing activities
of $150,000, a depreciation expense of $50,000, and cash flow from operating activities of
$575,000. a. Calculate the firm's quality of earnings ratio. What does this ratio tell you? b.
Mitchell reported the following in its
Presently you own shares of stock in Company A and are considering adding some shares in
either Company B or Company C. The standard deviations of all three firms are exactly the
same, but the correlation between the common stock returns for Company A and Company B is .
5, whereas it is -.5 between the common stock retu
Your Personal Balance Sheet and Income Statement on page 56, we learned that individuals have
financial statements just like firms. Prepare your personal balance sheet using the following
items: (i) You have a 2003 Corolla that you bought for $3,500 and still owe a note of $2,000; (ii)
your checking account has a balan
How do you calculate the future value of an annuity?
What is the relationship between the number of times interest is compounded per year on an
investment and the future value of that investment? What is the relationship between the number
of times compounding occurs per year and the EAR?
When bank loan officers are evaluating the creditworthiness of a potential commercial borrower,
they often look to the firm's net working capital balance as an indicator of the firm's overall
liquidity. How is net working capital defined, and what does it tell loan officers about the
liquidity of a firm?
Core Telecom provides communication services in Iowa, Nebraska, the Dakotas, and Montana.
Core purchased goodwill as part of the acquisition of Surety Wireless Company, which had the
following figures: Book value of assets .......................... $ 700,000 Market value of
assets .......................... 1,000,00
Partner Bank recently traded in office fixtures. Here are the facts: Old fixtures:
__________________________________ New fixtures: Cost, $91,000 Cash
paid, ....................................... $110,000 Accumulated depreciation, $68,000 Market value, .........
$133,000 Requirements 1. Record Partner Bank's trad
Midland States Telecom provides communication services in Iowa, Nebraska, the Dakotas, and
Montana. Midland States Telecom purchased goodwill as part of the acquisition of Sheldon
Wireless Enterprises, which had the following figures: Book value of assets ................................
$ 900,000 Market value of ass
On January 2, 2016, Pet Spa purchased fixtures for $37,800 cash, expecting the fixtures to
remain in service for six years. Pet Spa has depreciated the fixtures on a straight-line basis, with
$9,000 residual value. On May 31, 2018, Pet Spa sold the fixtures for $24,200 cash. Record both
depreciation expense for 2018 an
The cash flow statement is one of the four basic financial statements. Define the objective in
preparing this statement, and discuss some of the types of questions that can be addressed using
its content.
What financial statement are property, plant, and equipment reported on, and how?
Consider the following transactions of Sapphire Software: Mar. 31 Recorded cash sales of
$230,000, plus sales tax of 7% collected for the state of New Jersey. Apr. 6 Sent March sales tax
to the state. Journalize the transactions for the company. Ignore cost of goods sold.
White Corporation purchased equipment for $22,000. White recorded total depreciation of
$19,000 on the equipment. On January 1, 2018, White traded in the equipment for new
equipment, paying $23,200 cash. The fair market value of the new equipment is $25,100.
Journalize White Corporation's exchange of equipment. Assume
The following financial information was obtained from the year ended 2018 income statements
for Cash Automotive and Pennington Automotive: Requirements 1. Compute the times-interest-
earned ratio for each company. Round to two decimals. 2. Which company was better able to
cover its interest expense?
The comparative financial statements of Newton Cosmetic Supply for 2018, 2017, and 2016
include the data shown here: Requirements 1. Compute these ratios for 2018 and 2017: a. Acid-
test ratio (Round to two decimals.) b. Accounts receivable turnover (Round to two decimals.) c.
Days' sales in receivables (Round to t
Captain Transfer Corporation generated excess cash and invested in securities as follows: 2018
Jul. 2 Purchased 4,200 shares of Naradon, Inc. common stock at $13.00 per share. Captain
Transfer plans to sell the stock within three months, when the company will need the cash for
normal operations. Captain Transfer does
Watson Publishing completed the following transactions during 2018: Oct. 1 Sold a six-month
subscription (starting on November 1), collecting cash of $240, plus sales tax of 8%. Nov. 15
Remitted (paid) the sales tax to the state of Tennessee. Dec. 31 Made the necessary adjustment at
year-end to record the amount of
Decca Publishing paid $230,000 to acquire Thrifty Nickel, a weekly advertising paper. At the
time of the acquisition, Thrifty Nickel's balance sheet reported total assets of $130,000 and
liabilities of $70,000. The fair market value of Thrifty Nickel's assets was $100,000. The fair
market value of Thrifty Nickel's liab
Conseco Oil, Inc. has an account titled Oil and Gas Properties. Conseco paid $6,600,000 for oil
reserves holding an estimated 1,000,000 barrels of oil. Assume the company paid $570,000 for
additional geological tests of the property and $450,000 to prepare for drilling. During the first
year, Conseco removed and sold 7
Cannon Mountain Mining paid $462,300 for the right to extract mineral assets from a 400,000-
ton deposit. In addition to the purchase price, Cannon also paid a $900 filing fee, a $1,800
license fee to the state of Nevada, and $55,000 for a geological survey of the property. Because
Cannon purchased the rights to the min
Ajax Petroleum holds huge reserves of oil assets. Assume that at the end of 2018, Ajax
Petroleum's cost of oil reserves totaled $27,000,000, representing 3,000,000 barrels of oil.
Requirements 1. Which method does Ajax Petroleum use to compute depletion? 2. Suppose Ajax
Petroleum removed and sold 500,000 barrels of
Barot's 2018 financial statements reported the following items-with 2017 figures given for
comparison: Net income for 2018 was $3,910, and interest expense was $240. Compute Barot's
rate of return on total assets for 2018. (Round to the nearest percent.)
On February 28, 2017, Rural Tech Support purchased a copy machine for $53,400. Rural Tech
Support expects the machine to last for six years and have a residual value of $3,000. Compute
depreciation expense on the machine for the year ended December 31, 2017, using the straight-
line method.
Logan White is general manager of Valuepoint Salons. During 2018, White worked for the
company all year at a $13,600 monthly salary. He also earned a year-end bonus equal to 15% of
his annual salary. White's federal income tax withheld during 2018 was $1,360 per month, plus
$4,876 on his bonus check. State income tax
On January 3, 2018, Speedy Delivery Service purchased a truck at a cost of $67,000. Before
placing the truck in service, Speedy spent $3,000 painting it, $1,200 replacing tires, and $3,500
overhauling the engine. The truck should remain in service for five years and have a residual
value of $5,100. The truck's annual m
At September 30, 2018, the accounts of Spring Mountain Medical Center (SMMC) include the
following: Accounts Receivable ........................................... $145,000 Allowance for Bad Debts
(credit balance) ................... 3,400 During the last quarter of 2018, SMMC completed the
following selected t
Suppose Hale and Sons purchases $800,000 of 3.5% annual bonds of Tyson Way Corporation at
face value on January 1, 2018. These bonds pay interest on June 30 and December 31 each year.
They mature on December 31, 2022. Hale and Sons intends to hold the Tyson Way bond
investment until maturity. Requirements 1. Journali
Whitney Plumb Associates surveys American eating habits. The company's accounts include
Land, Buildings, Office Equipment, and Communication Equipment, with a separate
Accumulated Depreciation account for each asset. During 2018, Whitney Plumb completed the
following transactions: Jan. 1 Purchased office equipment, $1
On July 5, Williams Company recorded sales of merchandise inventory on account, $55,000.

The sales were subject to sales tax of 4%. On August 15, Williams Company paid the sales tax
owed to the state from the July 5 transaction. Requirements 1. Journalize the transaction to
record the sale on July 5. Ignore cost of g
During 2018, Mora Corporation completed the following transactions: Jan. 1 Traded in old office
equipment with book value of $55,000 (cost of $127,000 and accumulated depreciation of
$72,000) for new equipment. Mora also paid $70,000 in cash. Fair value of new equipment is
$133,000. Assume the exchange had commercial
Captain Investments completed the following investment transactions during 2018: Jan. 14
Purchased 200 shares of Velcon stock, paying $53 per share. The investment represents 4%
ownership in Velcon's voting stock. Captain does not have significant influence over Velcon.
Captain intends to hold the investment for the i
McNight Industries completed the following transactions during 2018: Nov. 1 Made sales of
$52,000. McNight estimates that warranty expense is 6% of sales. (Record only the warranty
expense.) 20 Paid $1,600 to satisfy warranty claims. Dec. 31 Estimated vacation benefits
expense to be $6,000. 31 McNight expected to pa
On October 1, 2018, Modern Company purchased a patent for $153,600 cash. Although the
patent gives legal protection for 20 years, the patent is expected to be used for only eight years.
Requirements 1. Journalize the purchase of the patent. 2. Journalize the amortization expense for
the year ended December 31, 2018.
The Accounts Receivable balance and Allowance for Bad Debts for Signature Lamp Company at
December 31, 2017, was $10,800 and $2,000 (credit balance), respectively. During 2018,
Signature Lamp Company completed the following transactions: a. Sales revenue on account,
$273,400 (ignore Cost of Goods Sold). b. Collection
The beginning balance sheet of Waterfall Source Co. included a $400,000 investment in Evan
stock (20% ownership, Waterfall has significant influence over Evan). During the year, Waterfall
Source completed the following investment transactions: Mar. 3 Purchased 4,000 shares at $11
per share of Lili Software common stoc
Erin O'Neil Associates reported short-term notes payable and salaries payable as follows: During
2018, O'Neil paid off both current liabilities that were left over from 2017, borrowed cash on
short-term notes payable, and accrued salaries expense. Journalize all four of these transactions
for O'Neil during 2018. Assum
County Company had the following partially completed payroll register: Requirements 1.
Complete the payroll register. Round to two decimals. 2. Journalize County Company's salaries
and wages expense accrual for the current pay period. 3. Journalize County Company's expenses
for employer payroll taxes for the curren
Safe Parking, near an airport, incurred the following costs to acquire land, make land
improvements, and construct and furnish a small building: Safe Parking depreciates land
improvements over 15 years, buildings over 40 years, and furniture over 10 years, all on a
straight-line basis with zero residual value. Requir
Money Man Investments completed the following transactions during 2018: Jan. 14 Purchased
400 shares of Technomite stock, paying $56 per share. The investment represents 25%
ownership in Technomite's voting stock and Money Man has significant influence over
Technomite. Money Man intends to hold the investment for the
What is depreciation? Define useful life, residual value, and depreciable cost.
League Up & Co. owns vast amounts of corporate bonds. Suppose League Up buys $900,000 of
CocoCorp bonds at face value on January 2, 2018. The CocoCorp bonds pay interest at the
annual rate of 8% on June 30 and December 31 and mature on December 31, 2022. League Up
intends to hold the investment until maturity. Require
Ricardo's Mexican Restaurant incurred salaries expense of $62,000 for 2018. The payroll
expense includes employer FICA tax, in addition to state unemployment tax and federal
unemployment tax. Of the total salaries, $22,000 is subject to unemployment tax. Also, the
company provides the following benefits for employees:
Berkshire Hathaway, Inc. is a holding company owning subsidiaries that engage in a variety of
different business activities including insurance, freight rail transportation, utilities and energy,
manufacturing, services and retail. Requirements With a partner or group, lead your class in a
discussion of the following
Peyton Investments completed the following investment transactions during 2018: 2018 Jan. 5
Purchased Vedder Company's $400,000 bond at face value. Peyton classified the investment as
available-for-sale. The Vedder bond pays interest at the annual rate of 4% on June 30 and
December 31 and matures on December 31, 2021
The following transactions of Plymouth Pharmacies occurred during 2017 and 2018: 2017 Jan. 9
Purchased computer equipment at a cost of $12,000, signing a six-month, 9% note payable for
that amount. 29 Recorded the week's sales of $63,000, three-fourths on credit and one-fourth for
cash. Sales amounts are subject to
Suppose that on January 6, 2018, East Coast Motors paid $280,000,000 for its 35% investment in
Boxcar Motors. East Coast has significant influence over Boxcar after the purchase. Assume
Boxcar earned net income of $90,000,000 and paid cash dividends of $45,000,000 to all
outstanding stockholders during 2018. (Assume al
Consider the following note payable transactions of Creative Video Productions. 2017 Aug. 1
Purchased equipment costing $16,000 by issuing a one-year, 9% note payable. Dec. 31 Accrued
interest on the note payable. 2018 Aug. 1 Paid the note payable plus interest at maturity.
Journalize the transactions for the com
On January 1, 2018, Bryant, Inc. decides to invest in 3,750 shares of Farrier stock when the stock
is selling for $16 per share. On August 1, 2018, Farrier paid a $0.70 per share cash dividend to
stockholders. On December 31, 2018, Farrier reports net income of $50,000 for 2018. Assume
Farrier has 15,000 shares of voti
Advance & Co. owns vast amounts of corporate bonds. Suppose Advance buys $1,100,000 of
FermaCo bonds at face value on January 2, 2018. The FermaCo bonds pay interest at the annual
rate of 3% on June 30 and December 31 and mature on December 31, 2037. Advance intends to
hold the investment until maturity. Requirements
Logan Realty loaned money and received the following notes during 2018. Requirements 1.
Determine the maturity date and maturity value of each note. 2. Journalize the entries to establish
each Note Receivable and to record collection of principal and interest at maturity. Include a
single adjusting entry on December

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