FINANCIAL ACCOUNTING: INFOR FOR DECISIONS 6th Edition

34 Chapter 1 11. Steve & Laura have identified a great business idea to make money at the 2007 International Festival. They have obtained advance approval for a one-year loan at 12% for $8,000. In addition, they will invest $20,000 of their own money. They estimate their profit for

Accounting and Organizations 21 73. The term value added is most closely associated with a. sales b. profit c. expenses d. owned investment ANS: B DIF: Moderate OBJ: 3 TOP: AICPA BB-Industry MSC: AACSB Analytic ANS: B DIF: Moderate OBJ: 3 TOP: AICPA BB-Industry MSC: AACSB Analytic

P1-4 A. Sales $4,500 Wages for occasional labor $ 700 Utilities 100 Rent on land and buildings 1,200 Advertising 300 Supplies 75 Delivery costs 225 Total 2,600 Profit $1,900 B. Expected return on investment = $22,800 $152,000 = 15% ($1,900 12 months) = $22,800 Rent on land and buildings 1,200

CHAPTER 1 Accounting and Organizations THINKING BEYOND THE QUESTION What do we need to know to start a business? Service businesses and most nonprofit organizations provide services ra- ther than goods. A service business attempts to earn a profit by selling services that its customers need at prices greater

1 Chapter 1--Accounting and Organizations True/ False L.O.s Level of Difficulty True/ False L.O.s Level of Difficulty 1 1 EASY 9 6 EASY 2 1 EASY 10 6 MOD 3 2 EASY 11 6 DIFF 4 3 EASY 12 7 MOD 5 3 MOD 13 7 EASY 6 4

Analysis of Financing Activities 285 P10-5 A. and B Pro Forma Income Statements Equity Debt Financing Financing Sales revenue $ 429,600 $429,600 Cost of sales (272,400) (272,400) Gross margin $ 157,200 $157,200 Interest expense (same as 2007) (5,000) ($5,000 plus $200,000 6%) (17,000) Other fixed expenses (70,000) (70,000)

267 CHAPTER 10 Analysis of Financing Activities THINKING BEYOND THE QUESTION How do we finance our business? Financial leverage is appropriate when it is likely that a company will be able to meet its principal and interest requirements. A company with sta- ble profits and cash flows usually is in a

Investing Activities 323 New building = $229,600 per year For the new building, the total cost must be determined. It is the sum of the costs given in the problem plus interest on the one- year construction loan: Architect's plans $ 120,000 Materials 1,700,000 Labor costs 3,500,000 Other fees and permits

303 CHAPTER 11 Investing Activities THINKING BEYOND THE QUESTION How do we account for investing activities? Investing is necessary for a company to grow. Good investments provide resources that a company can use to produce and sell additional prod- ucts. These sales lead to higher revenues. Good investments produce profits

338 Chapter 11 ASSETS = LIABILITIES + OWNERS EQUITY Accounts Cash Other Assets Contributed Capital Retained Earnings 2. Accumulated Depreciation 21,888 Depreciation Expense 21,888 2. Accumulated Depreciation 21,888 Depreciation Expense 21,888 2. Accumulated Depreciation 21,888 Depreciation Expense

388 Chapter 11 Match each term with the correct definition. a. Deferred taxes b. Equity method c. Capital expenditures d. Operating expenditures e. Prepaid taxes f. Depletion g. Depreciation h. Straight-line method 23. Systematic allocation of the cost of natural resources to the periods that benefit

351 certain intangible assets such as patents, copyrights, franchises, etc., 351 certain intangible assets such as patents, copyrights, franchises, etc., 351 certain intangible assets such as patents, copyrights, franchises, etc., CHAPTER 12 Analysis of Investing Activities THINKING BEYOND THE QUESTION How do assets create value for our

368 Chapter 12 Trendlines have been added to the graph to illustrate the steeper slope for Software Solutions. As its sales increase, its earnings increase at a more rapid rate than that of Fashion Clothing Company. This indicates that Software Solutions operating leverage is higher than that of Fashion Clothing.

383 revenue and service revenue, it is important for readers to know which side of the business contributed most to revenue and whether one side of the business is growing more rapidly than the other. For another example, it is important that financial statement users be able to evaluate

443 Chapter 13--Operating Activities True/ False L.O.s Level of Difficulty True/ False L.O.s Level of Difficulty 1 2 EASY 8 4 MOD 2 2 EASY 9 4 EASY 3 2 MOD 10 4 MOD 4 3 MOD 11 4 EASY 5 4 EASY 12 4 EASY 6

Operating Activities 403 ble accounts. If expenses were not recorded until actual accounts were written off, revenues often would be recorded in one period and related expenses would be recorded in another. The accrual basis of accounting attempts to match revenues and expenses in the period in which the economic

Operating Activities 463 2. Flextronics Corporation sold merchandise with a sales price of $20 million during 2007. Flextronics allowed its customers $4 million of quantity discounts. Flextronics expects a return rate of 6% of the amount billed, which is net of the discount. How much revenue (after discounts) should

483 Chapter 14--Analysis of Operating Activities True/ False L.O.s Level of Difficulty True/ False L.O.s Level of Difficulty 1 1 EASY 6 4 EASY 2 4 EASY 7 4 EASY 3 3 MOD 8 5 MOD 4 4 EASY 9 6 EASY 5 4 MOD 10 6

423 uct differentiation strategy, therefore, should have the effect of increasing the profit margin percentage, not decreasing it. Further, as the product becomes more valuable (and expensive), some drop-off in sales volume 423 uct differentiation strategy, therefore, should have the effect of increasing the profit margin percentage, not

Analysis of Operating Activities 501 5. Information is provided below for Travis Corp. (in thousands) 2008 2007 Operating revenues $2,400 $2,000 Cost of goods sold 1,500 1,500 Operating expenses 300 240 Net income 360 150 Total assets 4,000 3,000 Required:

Analysis of Operating Activities 441 fade? This may determine whether supermarkets continue to stock health foods; it is possible that they would once again become avail-able only in specialty stores. General economic trends could also be a factor; will consumers be able to continue to pay a premium price for

Business ActivitiesThe Source of Accounting Information 37 P2-7 A. ASSETS = LIABILITIES + OWNERS' EQUITY Date Accounts Cash Other Assets Contributed Capital Retained Earnings June 1 Cash 750 Contributed Capital 300 Note PayableDad

Business ActivitiesThe Source of Accounting Information 67 72. A credit entry is used to record increases to a. cost of goods sold b. notes payable c. wages expense d. cash ANS: B DIF: Moderate OBJ: Appendix TOP: Broad Business - Industry MSC: Analytic ANS: B DIF: Moderate

47 Chapter 2--Business Activities--The Source of Accounting Information True/ False L.O.s Level of Diffi- culty True/ False L.O.s Level of Diffi- culty True/ False L.O.s Level of Diffi- culty 1 3 EASY 8 2 MOD 15 4 EASY 2 1 MOD 9 2 EASY 16 5 EASY 3 1 MOD 10

23 how much debt they can incur, what amount of money they will receive 23 how much debt they can incur, what amount of money they will receive 23 how much debt they can incur, what amount of money they will receive CHAPTER 2 Business ActivitiesThe Source

78 Chapter 2 9. Saunders Enterprises had the following account balances at December 31, 2007: Cash 225,000 Contributed capital 240,000 Computer equipment 41,000 Cost of goods sold 290,000 Inventory 30,000 Land 60,000 Loans payable 18,000 Machinery 50,000 Notes payable 50,000 Rent expense

89 Chapter 3--Measuring Revenues and Expenses True/ False L.O.s Level of Difficulty True/ False L.O.s Level of Difficulty 1 1 EASY 8 4 EASY 2 2 MOD 9 3 DIFF 3 1 EASY 10 4 MOD 4 1 EASY 11 6 EASY 5 3 MOD 12 4 EASY

Measuring Revenues and Expenses 71 Desert Harbor Inn Statement of Cash Flows For the Year Ended December 31, 2007 Cash flow from operating activities: Collected from customers $187,000 Paid to employees ($49,000 $890) (48,110) Paid for utilities (10,400) Paid for supplies (800) Paid for interest (4,700) Paid to suppliers of

51 from that same event might flow in an earlier period, in the same period, or in a later period. Over time, however, the total amount of cash flow is equal to the accrual measure. In fact, the accrual measure is based on the amount of cash that is

Reporting Earnings and Financial Position 111 B. The Lo Company Income Statement Sales revenue $ 250,000 Cost of goods sold (180,000) Gross profit $ 70,000 General and administrative expenses (27,000) Operating income $ 43,000 Interest expense (4,000) Pretax income $ 39,000 Provision for income tax (11,700) Net income before

122 Chapter 4 7. There is no information provided that helps us determine whether the value of inventory has changed. The balance sheet reports on-ly the cost of inventory on hand at a given date. Here, the cost of inventory held at December 31, 2007, is different from the cost

91 91 91 CHAPTER 4 Reporting Earnings and Financial Position THINKING BEYOND THE QUESTION How do we report earnings and financial position to stockholders? Using common rules and formats is important so that decision makers can compare results across companies and so they will have faith in the reliability of

131 CHAPTER 5 Reporting Cash Flows THINKING BEYOND THE QUESTION How is cash flow information determined and reported to external users? A business can fail when it has insufficient cash to pay for its resource requirements and to pay principal and interest on its debt. Consequently, a profitable business

Reporting Cash Flows 151 P5-11 Office Decor Company Statement of Cash Flows For the Year Ended December 31, 2007 (in thousands) Operating Activities Net income $ 2,000 Increase in accounts receivable (2,400) Increase in inventories (4,400) Increase in accounts payable 1,200 Cash flow for

lending decisions based upon financial information. In addition, govern-ment authorities use financial information to determine whether compa-nies have met legal requirements and regulations. Customers and suppli-ers rely upon financial information to determine a companys viability. lending decisions based upon financial information. In addition, govern-ment authorities use financial information to determine

database that provides a means for sharing data among modules. They rely on a common management system to coordinate and protect the overall system. Each module has a common look and feel that makes it easier to maintain. database that provides a means for sharing data among modules. They rely

218 Chapter 8 P8-10 A. The amortization table is based on required monthly payments of $53,309.26 as determined below. PVA = Payment Interest factor $600,000 = Payment 11.25508 (Table 4, 1%, 12 months) Payment = $600,000 11.25508 Payment = $53,309.26 P8-10 A. The amortization table is based on required monthly

201 that an investment will grow to over time. Higher rates of interest or long-er investment periods result in higher future value. Present value is the amount that must be invested today to grow to a desired amount in the future. Higher interest rates or longer investment periods result

233 ny to back up the bonds. Serial bonds come due, a portion at a time, over a period of years. This is in contrast to bond issues in which all bonds come due for repayment at the same date. Callable bonds are bonds that a company can reacquire

Financing Activities 251 D. As each payment is made, the amount owed decreases. As the unpaid balance decreases, the amount of interest expense on the unpaid bal-ance also decreases. This leaves a larger portion of each successive payment to go toward reduction of the amount owed (principal). balance decreases, the

computation. Moderate: Comprehension and Analysis Approx. 1 1/2 2 minutes per question. These types of questions relate directly to material covered in the text, but are presented in a format that may be slightly, to moderately, different than the discussion in the text. They may require some analytical process and/or