Financial Reporting and Analysis 7th Edition

Financial Reporting and Analysis (7th Ed.) Appendix B Solutions Essentials of Financial Statement Analysis Exercises EB-1 Determining reportable segments (LO B-1) (AICPA adapted) ASC 280 provides quantitative guidelines for reporting segments. A company must report separate segment information if either 1. Segment revenue equals or exceeds 10% of total revenue from internal and external customers, or 2. Segment assets

Financial Reporting and Analysis (7th Ed.) Chapter 1 Solutions The Economic and Institutional Setting for Financial Reporting Problems Problems P1-1. Demand for accounting information (LO 1-1) Requirement 1: a) Existing shareholders use financial accounting information as part of their ongoing investment decisionsshould more shares of common or preferred stock be purchased, should some shares be sold, or

P1-6. Relevance versus faithful representation (LO 1-1) Requirement 1: The Blue Book average price is more relevant to the car buying decision than is the list (or fisticker) price shown on the manufacturers web site. Why? Because it better represents the price you can expect to pay for the automobile. The Blue Book

P1-14. Debt Covenants and Aggressive Accounting Practices (LO 1-4) Requirement 1: When a company violates its debt covenants, lenders can respond in any of several ways. They can simply waive the violation which is akin to a slap on the wrist. Or, they can amend the loan agreement and thereby charge a

Financial Reporting and Analysis (7th Ed.) Chapter 10 Solutions Long-Lived Assets and Depreciation Exercises Exercises E10-1. Capitalizing costs (LO 10-2) Phoenix may capitalize the following costs to the Machine account: Finders fee $ 2,000List price 230,000Transportation fee 4,000Installation fee 2 ,500Total cost to capitalize $238,500 Finders fee $ 2,000List price 230,000Transportation fee 4,000Installation fee 2 ,500Total cost

Financial Reporting and Analysis (6th Ed.) Chapter 10 Solutions Long-Lived Assets and Depreciation Problems Problems P10-1. Computing depreciation expense SL, DDB, SYD, and UP (LO 10-7) (AICPA adapted) The table below shows the amount of depreciation expense in 2017 under each method. Computations are shown below the schedule. Straight-line 2017 $90,000Double-declining balance2017 $162,000Sum-of-years digits2017 $140,000Units of production2017 $120,000 2017 $90,000Double-declining

P10-16. Making asset age and intercompany comparisons (LO 10-3) Requirement 1: ROA for Gardenia Co. (000s omitted): Jan. 1 Dec. 31 Dec. 31 Dec. 31 Dec. 31 Dec. 31 2017 2017 2018 2019 2020 2021 Asset net book value $20,000 $18,000 $16,000 $14,000 $12,000 $10,000Net operating cashflow, increasing2%/year $3,000 $3,060 $3,121 $3,183 $3,247Depreciation exp. 2

P10-21. IFRS impairment and revaluation (LO 10-10) Requirement 1: Cost model 12/31/2016: No entry 12/31/2017: DR Impairment loss: land 250,000 CR Land 250,000 DR Impairment loss: land 250,000 CR Land 250,000 DR Impairment loss: land 250,000 CR Land 250,000 12/31/2018: DR Land 100,000 CR Impairment reversal: land 100,000 DR Land 100,000 CR Impairment reversal:

Financial Reporting and Analysis (7th Ed.) Chapter 11 Solutions Financial Instruments and Liabilities Exercises Exercises E11-1. Finding the issue price (LO 11-2) (AICPA adapted) We know that the bonds were priced to yield 8% when the contract interest rate was only 6%. Since the yield is higher than the contract interest rate, we know the bonds were

Financial Reporting and Analysis (7th Ed.) Chapter 11 Solutions Financial Instruments and Liabilities Problems/Discussion Questions Problems P11-1. Imputing interest (LO 11-3) Requirement 1: To verify that the imputed interest rate on the dealers loan is 6%, compute the present value of the payment stream using a 6% discount rate and confirm that that present value is

P11-6. Call options as investments (LO 11-7) Required entries for 1 through 3: July 1, 2017: DR Marketable securitiesstock options $200 CR Cash $200 DR Marketable securitiesstock options $200 CR Cash $200 DR Marketable securitiesstock options $200 CR Cash $200 July 31, 2017: DR Unrealized holding loss on stock options $75 CR Market adjustmentstock

P11-11. Discount and premium amortization (LO 11-2) Requirement 1: The carrying values of both bonds in each of the two years presented is simply equal to the present value of the principal and interest payments discounted over the remaining life of the bond. To illustrate, the December 31, 2016, value of $9,653,550

P11-17. Unconditional purchase obligations (LO 11-6, LO 11-9) Requirement 1: The following schedule shows the present value computation using an 8% discount rate: Year Purchase commitment Present value factor Present value amount 2003 $164.0 0.92593 $151.92004 168.0 0.85734 $144.02005 169.0 0.79383 $134.22006 157.0 0.73503 $115.42007 151.0 0.68058 $102.82008 349.8 0.63017 $220.42009 349.8 0.58349 $204.12010 349.8 0.54027 $189.02011

P11-23. Hedging a Planned Sale (LO 11-7, LO 11-8) Requirement 1: Newton plans to sell some of its corn inventory next March, six months from now (October). This sale will take place at the March market price. However, Newton does not want to be exposed to commodity price risk between now and

C11-2 Tuesday Morning Corporation: Interpreting long-term debt disclosures Requirement 1: $1,402 from the balance sheet $1,402 from the balance sheet $1,402 from the balance sheet Requirement 2: $1,298 from the cash flow statement $1,298 from the cash flow statement $1,298 from the cash flow statement Requirement 3: The difference is $104. This appears to suggest that payment on the

Financial Reporting and Analysis (7th Ed.) Chapter 12 Solutions Financial Reporting for Leases Exercises Exercises E12-1. Accounting for lessee with purchase option under ASC 840 (LO 12-3) Requirement 1: Amount capitalized by Leland at 07/01/2017 The $100,000 represents a bargain purchase as the amount is significantly below the expected residual value of $600,000. Given that the lease

E12-8. Determining lease payment and depreciation amounts for a capital lease (LO 12-1, LO 12-3, LO 12-5) Note that the calculations will be the same for a finance lease under ASC 842. Part 1 - Lease payment computations Case 1 Case 2 Case 3 Fair value 70,000 80,000 100,000 Less: $10,000 residual x PV 10,

E12-17. Classifying leases under ASC 840, IAS 17 and ASU (2016-02 (ASC 842) (LO 12-3, LO 12-6, LO 12-10) Requirement 1: Classification under ASC 840 The lease would be a capital lease because the lease term of 5 years is 83% of the expected useful life. This meets the third lease criteria of

P12-4. Recording operating lease and comparing to finance lease treatment under ASU 2016-02 (ASC 842) (LO 12-6) Part 1 - Lease classification Payment 51,000Interest rate 9%Term 7Economic life 10Unguaranteed residual 150,000Fair value 361,837 Criterion 1 noCriterion 2 noCriterion 3 70.0% noCriterion 4 77.3% noPayments 51,000 5.485920 279,782.00 Payment 51,000Interest rate 9%Term 7Economic life 10Unguaranteed

P12-9. Recording capital lease for lessee and comparing to operating lease treatment under ASC 840 (LO 12-2, LO12-3, LO12-5) Part A June 30 reporting year Requirement 1: Lease criteria This is a capital lease for Burgundy because the lease meets the third criterion (lease term greater than or equal to 75% of the

P12-12. Accounting for monthly rental payments under ASC 840 (LO 12-1, LO 12-3, LO 12-5, LO 12-7, LO 12-8) Requirement 1: Monthly rental computation Fair value 3,000.00 Less: PV of guaranteed residual of(PV 36, 1% or 0.69892 x 400) 279.57 Amount to be recovered through rental payments 2,720.43 PVAD 36, 1% 30.40858

P12-16. Evaluating sale and leaseback under ASC 840 and ASU 2016-02 (ASC 842) (LO 12-3, LO 12-4, LO 12-6) Requirement 1: Lease type under ASC 840 This is a capital lease for Merchant because the lease meets at least one of the criteria for capital lease treatment. In fact, the lease meets

Financial Reporting and Analysis (7th Ed.) Chapter 13 Solutions Income Tax Reporting Exercises Exercises E13-1. Determining current taxes due (AICPA adapted) Because Allen has no current income tax liability at December 31, 2016 and it made no estimated tax payments in 2017, the amount of current income tax liability it would report at December 31, 2017 is

E13-17. Computing tax due, deferred taxes, and tax expense Requirement 1: The calculation of tax due for 2017 is as follows: Pretax income (per books) $400,000Adjustments for permanent differences: - Interest on municipal bonds (38,000)Adjustments for temporary differences: + Contingent liability, deductible in 2018 900,000 - Gross profit on installment sales, taxable

P13-7. Tax rate reconciliation schedules for IFRS vs. U.S. GAAP Note: If the weighted average tax rate or effective rate is rounded before doing the calculations, the students solution will differ because of rounding errors. the calculations, the students solution will differ because of rounding errors. the calculations, the students solution will differ because

P13-15. Financial statement effects of tax rate change Requirement 1: Both companies project pretax income of $100 million. Because there are no permanent differences and no change in cumulative temporary differences in 2017 for either company, both are also projected to have taxable income of $100 million. Under the revisedtax law,

C13-4. ABC Inc.: Interpreting tax notes and reconciling statutory and effective rates Requirement 1: Tax Amount Tax Rate Tax expense at statutory rate of 35% $3,812 35.00%Amortization of cost in excess of net assets of acquired companies 1,076 9.88%State taxes 927 8.51%Change in the valuation allowance for deferred tax assets (2,122) (19.48%)Others (425

Financial Reporting and Analysis (7th Ed.) Chapter 14 Solutions Pensions and Postretirement Benefits M,;nbklExercises Exercises E14-1. Determining projected benefit obligation (LO14-3) (AICPA adapted) The projected benefit obligation on 12/31/17 is computed as follows: Projected benefit obligation, 1/1/17 $72,000Service cost 18,000Interest cost on beginning PBO (10% x $72,000) 7,200Benefit payments (15 ,000) Projected benefit obligation, 1/1/17 $72,000Service cost

E14-16. Determining postretirement health care expenses and plan assets and liabilities balances (LO14-7) Requirement 1: Determination of postretirement health care expense for 2017: Service cost $20,000 Interest on accumulated benefit obligation (8% x $300,000) 24,000Expected return on plan assets (.10 x $30,000) (3,000)Recognized prior service cost 10,000 (8% x $300,000) 24,000Expected return on plan assets (.10

Financial Reporting and Analysis (7th Ed.) Chapter 14 Solutions Pensions and Postretirement Benefits Problems Problems P14-1. Determining components of pension expense (LO14-3, LO14-4, LO14-6) Requirement 1: Interest cost Beginning balance of PBO $600,000 x Discount rate x .08= Interest cost $ 48,000 x Discount rate x .08= Interest cost $ 48,000 x Discount rate x .08 = Interest cost $ 48,000 Requirement

P14-5. Calculating PBO, ABO and pension expense (LO 14-1, LO 14-2, LO 14-3) Requirement 1: Calculation of PBO on January 1, 2017: Annual pension benefits starting on 12/31/2031 and continuing for 10 years thereafter (11 years total = 76 - 66). Years of service credit as of 1/1/2017:(10 yrs. x $250) $2,500Benefits

Requirement 1: Annual pension expense Assumptions: Discount rate = 8% and rate of return on plan assets = 10% End of Year 1 Annual Salary 2 Cumulative Salary 3 Total Vested Pension 4 Vested During the Year 5 Discount Period 6 PV Factor 7 PV of Total Vested Pension 8 2017 $50,000 $ 50,000 $12,500 $12,500 4 0.73503 $ 9,187.87 2018 60,000 110,000 27,500 15,000 3 0.79383 21,830.39 2019

P14-12 Evaluating the effects of unreasonable rate of return assumptions (LO14-3, LO14-4, LO14-6, LO14-9) Requirement 1: US GAAP pension expense New Service Cost $300.00 + Interest Cost *465.00+ Amortization of AOCI outside corridor**11.20-Expected Return on Plan Assets ***1,000.0 + Interest Cost *465.00+ Amortization of AOCI outside corridor**11.20-Expected Return on Plan Assets ***1,000.0 +

Financial Reporting and Analysis (7th Ed.) Chapter 15 Solutions Financial Reporting for Owners Equity Exercises Exercises E15-1.Understanding Shareholders Equity (LO 15-1, LO 15-3, LO 15-6, LO 15-7) Requirement 1: Preferred stock is a class of capital stock that pays dividends at a specified rate and that has preference over common stock in the payment of dividends and

P15-5. Analyzing convertible debt (LO 15-9) (AICPA adapted) Requirement 1: Journal entry to record the original issuance of the $10 million convertible bond at par: DR Cash $10,000,000 CR Convertible bonds payable $10,000,000 DR Cash $10,000,000 CR Convertible bonds payable $10,000,000 DR Cash $10,000,000 CR Convertible bonds payable $10,000,000 Notice that this entry does not assign any

P15-12. Calculating EPS when the capital structure is complex (LO 15-6) Requirement 1: The preferred stock pays a 10% dividend ($500,000), so there must be $5 million of preferred stock outstanding. Since each share has a $100 par value, there must have been 50,000 shares issued (50,000 shares x $100 per share

P15-19. Stock option accounting: Transitioning to current GAAP (LO 15-6) Requirement 1: Under the intrinsic value method allowed by pre-Codification SFAS No. 123, but later disallowed by pre-Codification SFAS No. 123(R), firms that issued in the money optionsmeaning the grant date stock price exceeded the options exercise pricewere required to record compensation

C15-4. Salesforce.com: Interpreting Share-based Compensation Disclosures (LO 15-7, LO 15-8) All answers involving financial statement amounts are in thousands. Requirement 1: 2015 share-based compensation expense and classification The total amount of share-based compensation expense is $564,765. It represents the sum of amounts in Cost of revenues, Research and development, Marketing and sales, and

Financial Reporting and Analysis (7th Ed.) Chapter 16 Solutions Intercorporate Investments Exercises Exercises E16-1. Accounting for trading and available-for-sale securities (AICPA adapted) Requirement 1: Only the unrealized holding gains/losses from trading securities are recognized as income. Because the cost basis of the investment in Alpha is the same on 12/31/16 and 12/31/17, the unrealized gain reported in the

Financial Reporting and Analysis (7th Ed.) Chapter 16 Solutions Intercorporate Investments Exercises Exercises E16-1. Accounting for trading and available-for-sale securities (AICPA adapted) Requirement 1: Only the unrealized holding gains/losses from trading securities are recognized as income. Because the cost basis of the investment in Alpha is the same on 12/31/16 and 12/31/17, the unrealized gain reported in the

E16-17. Translating foreign currency (AICPA adapted) Because the subsidiarys functional currency is the local currency unit (LCU), Ward Inc. must use the current rate method to translate the subsidiarys LCUs into U.S. dollars. Under the current rate method, all expenses are translated at the exchange rate in effect at the time

P16-4. Equity method and fair value option Requirement 1: The determination of excess cost and its allocation is as follows: 2017 Journal entries: January 1, 2017 - Initial acquisition DR Investment in Delta Crating $250 CR Cash $250 (To record purchase of 30% of outstanding shares of Delta CratingCorp.)To record equity

P16-8. Elimination entries and consolidated balance sheet under acquisition method 16-1 Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Requirement 3: Plate Salad Eliminations Consolidated Dr Cr Balance Sheet Assets Cash $ 320,000 $ 100,000 $ 420,000

Financial Reporting & Analysis (7th Ed.) Chapter 17 Solutions Statement of Cash Flows Exercises Exercises E17-1. Deriving a direct method presentation of cash flow from operating activities ABC Mining Company Cash Flow from Operations For the Year Ended December 31, 2017 E17-2. Determining cash flow from operating activities (AICPA adapted) Linos net cash from operating activities is calculated below: Net income $150,000

P17-2. Cash flow statement under indirect method 17-1 Copyright 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. P17-3. Determining amounts reported on statement of cash flows (AICPA adapted) Requirement 1: Cash collections from customers can be determined by examining the accounts receivable T-account, shown below:Accounts

P17-5. Preparing and analyzing cash flow statement Requirement 1: Global Trading Company Statement of Cash Flows For the Year Ended December 31, 2017 Cash flow from operations Net loss for the year ($279,500) + Depreciation expense 50,000+ Goodwill impairment 70,000+ Decrease in net accounts receivable 240,000+ Decrease in inventory 170,000+ Decrease in prepaid insurance 20,000+ Increase in

P17-9. Preparing a statement of cash flowsindirect method (AICPA adapted) Omega Corporation Statement of Cash Flows For the Year Ended December 31, 2017 Cash Flow from Operating Activities: Net income $360,000 Adjustments to reconcile net income to cash provided by operating activities: Depreciation1150,000 Gain on sale of equipment2(5,000) Undistributed earnings of Belle Co.3(30,000) Gain on sale of equipment2(5,000) Undistributed

C17-3. Opus One, Inc.: Preparing and analyzing the cash flow statement Requirement 1: Notes: 1) Since the company did not declare or pay any cash or stock dividends during the year, the change in the retained earnings of $1,127,664 must be thenet income for the year. during the year, the change in the retained

Financial Reporting and Analysis (7th Ed.) Chapter 2 Solutions Accrual Accounting and Income Determination Exercises Exercises E2-1. Distinguishing accrual-basis revenue from cash receipts (AICPA adapted) Because the subscription begins with the first issue of 2018, no revenue is recognized in 2017. No product or service has yet been provided by Gee Company to its customers.Gee received in

E2-12. Error Correction Requirement 1: At the end of 2016, inventory is understated by $8,000 and must be corrected. Accumulated depreciation is overstated by $22,300 $6,000 = $16,300 and must also be corrected. Note that we determined these amounts differently. Inventory is a balance sheet account and we are given the amount

P2-3. Understanding the accounting equation Flaps Inc. Balance Sheet Year 2016 2017 2018 2019 2020 Assets Current assets $ 5,098 $ 5,130 $ 5,200 $ 5,275 $ 5,315Non-current assets 8,667 8,721 8,840 8,968 9,036 Total assets 13,765 13,851 14,040 14,243 14,351 LiabilitiesCurrent liabilities 3,399 3,420 3,467 3,517 3,543 Non-current liabilities 5,231 5,263 5,335 5,412 5,454 Total liabilities 8,630 8,683 8,802

P2-7. Determining income from continuing operations and gain (loss) from discontinued operations (AICPA adapted) Requirements 1 and 2: The amounts to be reported for income from continuing operations after taxes excludes the losses from the discontinued operations. Helen Corporation Partial Income Statement For the Years Ended December 31 2017 2016 Income from continuing operations, before taxes$ 1,600,000 $

P2-14. Correcting errors 1) Correcting entries in 2017 for equipment improperly expensed in 2016: DR Office equipment $5,000 CR Accumulated depreciation (1 year) $1,250 CR Retained earnings 3,750 DR Office equipment $5,000 CR Accumulated depreciation (1 year) $1,250 CR Retained earnings 3,750 DR Office equipment $5,000 CR Accumulated depreciation (1 year)

Financial Reporting and Analysis (7th Edition) Chapter 3 Solutions Revenue Recognition Exercises Note: Exercises E3-1 through E3-4 deal with when a contract subject to the revenue recognition rules exists. In order for a contract to exist that is subject to ASC Topic 606, the following conditions must all have been met: All parties to

E3-20. Breakage The following analysis shows the amount of breakage revenue Ashley recognizes in each year. At the end of 2019, Ashley estimates that $300 of gift cards will not be redeemed. Gift card redemptions to date have totaled $12,000 out of the $30,000 $300 = $29,700 expected to be redeemed eventually, so

P3-11. Right of return Berger applies the variable consideration analysis, which indicates that $200,000 $10,000 $2,000 = $188,000 is its best estimate of the amount it will be entitled to receive related to 2019 sales. First Berger records the initial sale of $200,000, allowing for $12,000 in returns: DR Cash CR Sales

Financial Reporting and Analysis (7th Ed.) Chapter 4 Solutions Structure of the Balance Sheet and Statement of Cash Flows Exercises Exercises E4-1. Analyzing balance sheet classification b Long-term receivables (d) Accumulated amortization f Current maturities of long-term debt f Notes payable (short-term)f Accrued payroll taxesc or d Leasehold improvementsi Retained earnings appropriated for plant expansion f Notes payable (short-term)f Accrued

P4-2. Preparation of a statement of cash flows and a balance sheet Requirement 1: Kay Wing, Inc. Statement of Cash Flows For the Year Ended 12/31/2017 Cash flows from operating activities Net income $35,500 Adjustments to reconcile net income to net cash provided by operating activities Depreciation expense 12,000 Gain on retirement of bonds (2,000) Loss on sale of equipment 4,000 Increase

P4-10. Understanding the relation between operating cash flows and accrual earnings Requirement 1: Sales1 ($28,000 + $3,000) $31,000 Less: Cost of goods sold2 ($13,000 + $2,000 - $3,000) (12,000)Operating expenses3 ($9,000 - $2,000) (7,000)Depreciation expense (4,000)Income tax expense4 ($4,000 + $1,000) (5,000)Writeoff of intangibles (1,000)Gain on sale of equipment 2 ,000Net income $

Financial Reporting and Analysis (7th Ed.) Chapter 4 Solutions Structure of the Balance Sheet and Cash Flow Statement Cases Cases C4-1. Subsequent events Event 1: The loan, and the nature of the collateral, should be disclosed in the notes to the financial statements. The loan would not be reflected in the balance sheet at December 31, 2017,

Financial Reporting and Analysis (7th Ed.) Chapter 5 Solutions Essentials of Financial Statement Analysis Exercises Exercises E5-1 Calculating profitability ratios (AICPA adapted) E5-2 Determining inventory turnover (AICPA adapted) E5-3 Determining receivable turnover (AICPA adapted) Accounts receivable turnover = Total credit sales Average receivables = 5.0 and Average receivables = ($250,000 + $300,000)/2 = $275,000. So, Total credit sales = $275,000 x 5.0 =

P5-4 Decomposing return on common shareholders equity Requirement 1: ROCE measures a companys performance in using capital provided by common shareholders to generate earnings. ROCE increased from -10.4% in the year ended February 2, 2013 to 27.5%in the year ended January 31, 2015. increased from -10.4% in the year ended February 2, 2013

P5-14 Explaining changes in financial ratios (AICPA adapted) 1) a,b,d Inventory turnover is defined as the cost of goods sold divided by average inventory. A lower inventory would cause the inventory turnover ratio to increase, as would a higher cost of goods sold. Consignment items should still be included in inventory, but

Financial Reporting and Analysis (7th Ed.) Chapter 6 Solutions The Role of Financial Information in Valuation and Credit Risk Assessment Problems/Discussion Questions Exercises E6-1. Free cash flow valuation Requirement 1: Although the exact definition of free cash flow varies in practice, most stock analysts, investment professionals, and valuation experts define the term as the companys operating

Financial Reporting and Analysis (7th Ed.) Chapter 6 Solutions The Role of Financial Information in Valuation and Credit Risk Assessment Problems/Discussion Questions Problems P6-1 Interpreting stock price changes Requirement 1: AMDs announcement differed from analysts expectations and presumably also from the markets expectations. One would expect the price to adjust to reflect the new updated information. Note that

P6-8. Assigning credit ratings using financial ratios Requirement 1: Standard & Poors credit analysts would probably assign a credit rating of BB to Firm 1. The financial ratios for this firm are closest tothe median values for BB rated companies (see Exhibit 6.5). rating of BB to Firm 1. The financial ratios for

Financial Reporting and Analysis (7th Ed.) Chapter 6 Solutions The Role of Financial Information in Valuation, Cash Flow Analysis, and Credit Risk Assessment Cases Cases C6-1. Illinois Tool Works: Abnormal earnings valuation Requirements 1 and 2: The template solution (shown on the next page) yields an estimated stock price of $36.08 per share. This estimate is considerably

Financial Reporting and Analysis (7th Ed.) Chapter 7 Solutions The Role of Financial Information in Contracting Exercises Exercises E7-1. Understanding debt covenants Debt covenants are restrictive provisions written into loan agreements. They are designed to reduce potential conflicts of interest between the lender and borrower. Typical restrictions include limits on additional debt, dividend payments, mergers, asset sales,

P7-6. Tying bonus to EPS performance Requirement 1: According to the bonus formula, Mr. Brincat would receive a bonus of $500,000 if the company reported net after-tax earnings of $50 million and the EPS increase was 10 percent. Basic bonus: 1% of $50 million = $500,000Additional bonus: zero Basic bonus: 1% of $50 million

Financial Reporting and Analysis (7th Ed.) Chapter 8 Solutions Receivables Exercises Exercises E8-1. Analyzing accounts receivable (LO8-2) (AICPA adapted) To find the amount of gross sales, start by determining credit sales. We can do this with the accounts receivable T-account below. Accounts Receivable Beginning AR $80,000 $1,000 Accounts written offCredit sales X 35,000 Cash collectedEnding AR $74,000 $80,000 +

Financial Reporting and Analysis (7th Ed.) Chapter 8 Solutions Receivables Problems Problems P8-1. Determining balance sheet presentation and preparing journal entries for various receivables transactions (LO 8-1, LO 8-4, LO8-6) Requirement 1: Journal entries 1. April 1 DR Notes receivable $ 17,775 CR Accounts receivable $ 17,775 December 31 DR Interest receivable ($17,775 x .08 x 9/12) $ 1,067CR

P8-7. Scheduling interest received (LO 8-4) Effective interest table in 000s ( a ) ( b ) ( c ) ( d ) Date Interest income - prior (d) x 11.12%) Note payment received (given) Total cash received (a) + (b) Note receivable - prior (d) less (b) 12/31/2017 $63,930 12/31/2018 $7,109 $20,724 $27,833 43,206 12/31/2019 4,805 15,896 20,701 27,310 12/31/2020 3,037 11,559 14,596 15,751 12/31/2021 1,752 7,179 8,931 8,572

P8-12. Reconstructing T-accounts (LO 8-12) Requirement 1: Allowance for doubtful accounts Beginning balance $4,955,000 Provision for doubtful accounts (from incomestatement) 5,846,000Bad debts written-off (plug number) $6,876,000 Ending balance $3,925,000 Beginning balance $4,955,000 Provision for doubtful accounts (from incomestatement) 5,846,000Bad debts written-off (plug number) $6,876,000 Ending balance $3,925,000 Beginning balance $4,955,000 Provision for doubtful accounts (from income statement)

P8-15. Accounting for transfer of receivables (LO 8-6) It seems that Ricoh Company is treating the discounting of receivables as a sale. Note that Ricoh indicates that trade notes receivable discounted are contingent liabilities. If Ricoh had treated the discounting of receivables as a borrowing, then there is no need for reporting

Financial Reporting and Analysis (7th Ed.) Chapter 9 Solutions Inventories Exercises Exercises E9-1. Computing inventory amount from income statement data (LO 1) (AICPA adapted) To find merchandise inventory, we first need to find cost of goods sold. This figure can be computed by using the gross margin percentage given. If profit is 20% of sales, then cost

E9-9. Computing ending inventory and cost of sales under direct and absorption costing (LO 12) (AICPA adapted) Requirement 1: Finished goods inventory under variable (direct) costing. Finished Goods Inventory Beginning balance 0Cost of goods Manufactured $800,000? Cost of goods soldEnding balance X Beginning balance 0Cost of goods Manufactured $800,000? Cost of goods soldEnding balance X Beginning balance

E9-17. Computing dollar-value LIFO (LO 13) (AICPA adapted) To compute ending inventory at base year prices, we need to divide the year-end prices of each year by the respective price index, then separate the layers to compute ending inventory at LIFO Cost. Here are the computations: Year Ended December 31, Inventory at Respective Year-End Prices External Price Index (Base Year

P9-4. Determining the effects of absorption and variable costing (LO 12) Requirement 1: Absorption Cost: 2017 Sales revenue [100,000 @ $10] $1,000,000Cost of goods sold:From beginning inventory [30,000 @ $8] $240,000From 2017 production [70,000 @ $8] 560,000(800,000)Gross margin 200,000Gross margin % 20.0% Sales revenue [100,000 @ $10] $1,000,000Cost of goods sold:From beginning inventory

P9-11. Evaluating inventory cost-flow changes (LO 4) Requirement 1: Better matching of revenues and expenses . . . Matching does not refer to the physical flow of goods, but rather to cost-flow assumptions. LIFO better matches current costs to current sales. Unless customers have a choice of which particular unit to buy (as in

Financial Reporting and Analysis (7th Ed.) Chapter 9 Solutions Inventories Cases Cases C9-1. Daimler AG: Identifying differences and similarities between IFRS and GAAP (LO 11) Similarities 1. As a manufacturer, Daimler reports separate values for raw materials, work-in-process, and finished goods. materials, work-in-process, and finished goods. materials, work-in-process, and finished goods. 2. Daimler uses a cost flow assumption average cost 3. Costs