Archives: Solution Manual

P4-10. Understanding the relation between operating cash flows and accrual earnings Requirement 1: Sales1 ($28,000 + $3,000) $31,000 Less: 1Collections from customers + decrease in accounts receivable. 2Payment to suppliers for purchases + increase in accounts payable – increase in […]

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 […]

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 c Machinery […]

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 […]

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 […]

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 […]

P2-14. Correcting errors 1) Correcting entries in 2017 for equipment improperly expensed in 2016: To capitalize equipment purchased in 2016 and improperly expensed. DR Depreciation expense $1,250 CR Accumulated depreciation $1,250 To record 2017 depreciation on equipment ($5,000 ÷ 4 […]

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 […]

P2-3. Understanding the accounting equation Flaps Inc. Balance Sheet Year 2016 2017 2018 2019 2020 Assets Stockholders’ Equity Common stock 138 139 140 142 144 Additional paid-in capital 2,202 2,216 2,247 2,280 2,296 Contributed capital 2,340 2,355 2,387 2,422 2,440 […]

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 […]

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 E2-2. Converting from cash […]

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 […]

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 manufacturer’s web site. Why? Because it better represents […]

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 […]

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 […]

Solutions to Chapter 24 Risk Management 1. a. True. Hedging is a zero‐sum game. b. False. Reducing risk always increases company value. 2. Insurance is a part of risk management that is similar in many ways to hedging. Both activities […]

Solutions to Chapter 23 Options 1. A call option gives its owner the opportunity to buy a stock at a specific price which is 2. Payoff and profit if stock price on expiration date = $750: Est Time: 01-05 Option […]

Solutions to Chapter 22 International Financial Management 1. a. You can buy 100/1.376 = 72.67 euros for $100. b. You can buy 100 .888 = 88.80 Swiss francs for $100. You can buy 100/.888 = 112.61 dollars for 100 Swiss […]

Solutions for Chapter 21 Mergers, Acquisitions, and Corporate Control 1. a. horizontal b. conglomerate 2. a. Yes. Merging to achieve economies of scale makes economic sense because it reduces cost. b. No. Merging to reduce risk by diversification does not […]

Solutions to Chapter 20 Working Capital Management 1. a.The current assets consist of: Cash $3.7 Marketable Securities 6.4 Accounts Receivable 8.7 Inventories 7.9 b. The current liabilities consist of: Accounts Payable 8.4 Other current liabilities 12.2 Total Current Liabilities 20.6 […]

d. Table 19.4 changes are as follows: … e. Table 19.5 changes are as follows:… 19- Copyright © 2018 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education. Q3 Q4 Receivables at […]

Solutions to Chapter 19 Short-Term Financial Planning 1. Cash Net Working Capital a. $2 million decrease $2 million decrease b. $2,500 increase Unchanged 2. Sources Issued long-term debt $ 300 Sale of fixed assets 600 Cash from operations: Net income […]

Solutions for Chapter 17 Payout Policy 1. a. May 7: Declaration date b. The stock price will fall on the ex-dividend date, June 7. The price falls on this day because, as the stock goes ex-dividend, the buyers of the […]

1. a. %20.11%14 27 19 )35.01(%7 27 8 WACC              b. If the firm has no debt, the market value of the firm would decrease by the present […]

Solutions to Chapter 16 Debt Policy 1. a. True. b. False. As financial leverage increases, the expected rate of return on equity rises by c. False. The sensitivity of equity returns to business risk, and therefore the cost of equity […]

Solutions to Chapter 15 How Corporations Raise Venture Capital and Issue Securities 1 a At $0.40 per share, it will take 500,000 0.40 =1,250,000 shares to raise the $500,000 in b You own 1,000,000 shares, and the VC owns 1,250,000, […]

Solutions to Chapter 13 The Weighted-Average Cost of Capital and Company Valuation 1. a. If Big Oil does not pay taxes, then the after-tax and before-tax costs of debt are identical. WACC would then become:      […]

1. a. Beta is the responsiveness of each stock’s return to changes in the market return. Then: 2.1 40 48 )8(32 )10(38 Δ Δ β    m A A r r 75.0 40 30 )8(32 )6(24   […]

Solutions to Chapter 12 Risk, Return, and Capital Budgeting 1. The risks of deaths of individual policyholders are largely independent and are therefore diversifiable. The insurance company is satisfied to charge a premium that reflects actuarial probabilities of death, without […]

Solutions to Chapter 11 Introduction to Risk, Return, and the Opportunity Cost of Capital 1. a. For the period 1900–2015, average rate of return = 11.4% (see Table 11-1). 2. Investors would not have invested in bonds during the period […]

a. Use goal seek to isolate profit after tax as the dependent variable relating to initial revenue. The level of initial revenue in the base case was $15,000,000, which produced accounting profits of $11,458,000 across the five project years. Adjusting […]

Solutions to Chapter 10 Project Analysis 1. Scenario analysis – Project NPV is recalculated by changing several inputs to new but consistent values. Real option – Opportunity to modify a project at a future date. Sensitivity analysis – Analysis of […]

Year 0 1 2 3 4 5 6 Sales (traps) 0.5 0.6 1 1 0.6 0.2 Revenue 0 2 2.4 4 4 2.4 0.8 Working capital 0.2 0.24 0.4 0.4 0.24 0.08 0 Revenues 2 2.4 4 4 2.4 0.8 […]

Solutions to Chapter 9 Using Discounted Cash-Flow Analysis to Make Investment Decisions 1. Gross revenues from new chip = 12 million  $25 = $300 million Cost of new chip = 12 million  $8 = $96 million 2. Incremental […]

1. a. NPVA = –$36 + [$20  annuity factor (10%, 3 periods)] b. Project A has the higher profitability index, as shown in the table below: Project PV of Cash Flow Investment NPV Profitability Index A $49.74 $36 $13.74 […]

Solutions to Chapter 8 Net Present Value and Other Investment Criteria 1. NPVA = –$200 + [$80  annuity factor (11%, 4 periods)] 2. Choose Project A, the project with the higher NPV. Est me: 01–05 Net present value 3. […]

28. 59.16$ )12.1( 18$ )12.1( 50.2$ 12.1 2$ 32 0P Est time: 01–05 Nonconstant-growth stock 29. a. DIV1 = $2  1.20 = $2.40 b. DIV1 = $2.40 DIV2 = $2.88 DIV3 = $3.456 675.32$ 04.015.0 04.1456.3$ 3   […]

Solutions to Chapter 7 Valuing Stocks 1. a. False. The bid price is always lower relative to the ask price, resulting the bid-ask spread 2. – Internet exercise; answers will vary. 3. a. Georgina will receive the bid price of […]

1. a. At a price of $1,200 and remaining maturity of 9 years, find the bond’s yield to b. Rate of return = %61.30 980$ )980$200,1($80$   Est time: 01–05 Bond yields and returns 2. a. 000,1$ 09.1 000,1$ […]

Solutions to Chapter 6 Valuing Bonds 1. The bond pays a coupon of 5.25%, which means annual interest is $52.50. The bond is selling for 130.4531 = $1,304.531. Therefore, the current yield is $52.50/$1,304.531= 4.02%. 2. a. Coupon rate = […]

2. The interest rate per 3 months is 6%/4 = 1.5%. 3. a. Using the annuity table, the annuity factor is 11.4699. The annual payment on the loan is therefore $100,000/11.4699 = $8,718.47. c. The initial interest is $6,000 of […]

2. You should compare the present values of the two annuities. PV = C((1 / r) – {1 / [r(1 + r)t]}) a. 73.721,7$ (1.05)0.05 1 0.05 1 $1,000PV 10          73.303,8$ […]

Solutions to Chapter 5 The Time Value of Money 1. a. Future value Year 1 = Present value × (1 + r) Interest Year 1 = Future value Year 1 – Present value = $1,040 – 1,000 = $40 b. […]

Solutions to Chapter 4 Measuring Corporate Performance 1. a. Market value = 657 mil × $83 = $54,531 million 2. The market value = 1.754 million × $67.30 = $118,044 million. The market value added for Home Depot = $118,044 […]

1. Cash flow from operations can be positive even if net income is negative. For example, if depreciation expenses are large, then negative net income might 2. An increase in accounts receivable reduces cash flow by $10,000. An increase in […]

Solutions to Chapter 3 Accounting and Finance 1. The balance sheet shows the position of the firm at one point in time. It shows the amounts of assets and liabilities at that particular time. In this sense it is like […]

Solutions to Chapter 2 Financial Markets and Institutions 1. The story of Apple Computer provides three examples of financing sources: equity investments by the founders of the company, trade credit from suppliers, and 2. Money markets: where short-term debt instruments […]

Solutions to Chapter 1 Goals and Governance of the Firm 1. a. Investment decision 2. Investment decisions, typically called capital budgeting, relate to investments in tangible and intangible assets. Financing decisions relate to the raising of money through debt and […]

Chapter 20 – Personal Selling and Sales Management Marketing 6th Answers to End of Chapter Learning Aids Marketing Digitally 1 Go to Salesforce.com’s You Tube channel at http://www.youtube.com/user/salesforce. Watch a few of the short videos and discuss how the tools […]

Chapter 20 – Personal Selling and Sales Management Marketing 6th Chapter 20 Personal Selling and Sales Management Tools for Instructors Brief Chapter Outline Learning Objectives Extended Chapter Outline with Teaching Tips Answers to End of Chapter Learning Aids Chapter Case […]