Sample Questions and Solutions
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Sample Questions and Solutions

Course Number: AIM 6330, Spring 2011

College/University: UT Dallas

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Chapter 1 CA1- 2 ( Objectives of Financial Reporting) Karen Sepan, a recent graduate of the local state university, is presently employed by a large manufacturing company. She has been asked by Jose Martinez, controller, to prepare the companys response to a current Preliminary Views published by the Financial Accounting Standards Board ( FASB). Sepan knows that the FASB has issued seven Statements of Financial...

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1 Chapter CA1- 2 ( Objectives of Financial Reporting) Karen Sepan, a recent graduate of the local state university, is presently employed by a large manufacturing company. She has been asked by Jose Martinez, controller, to prepare the companys response to a current Preliminary Views published by the Financial Accounting Standards Board ( FASB). Sepan knows that the FASB has issued seven Statements of Financial Accounting Concepts, and she believes that these concept statements could be used to support the companys response to the Preliminary Views. She has prepared a rough draft of the response citing Statement of Financial Accounting Concepts No. 1, Objectives of Financial Reporting by Business Enterprises. Instructions ( a) Identify the three objectives of financial reporting as presented in Statement of Financial Accounting Concepts No. 1 ( SFAC No. 1). ( b) Describe the level of sophistication expected of the users of financial information by SFAC No. 1. ( CMA adapted) CA1- 9 ( GAAP Terminology) Wayne Rogers, an administrator at a major university, recently said, Ive got some CDs in my IRA, which I set up to beat the IRS. As elsewhere, in the world of accounting and finance, it often helps to be fluent in abbreviations and acronyms. Instructions Presented below is a list of common accounting acronyms. Identify the term for which each acronym stands, and provide a brief definition of each term. ( a) AICPA ( e) FAF ( i) CPA ( b) CAP ( f) FASAC ( j) FASB ( c) ARB ( g) SOP ( k) SEC ( d) APB ( h) GAAP ( l) IASB SOLUTIONS CA 1-2 (a) In accordance with Statement of Financial Accounting Concepts No. 1, Objectives of Financial Reporting by Business Enterprises, the objectives of financial reporting are to provide information to investors, creditors, and others 1. that is useful to present and potential investors and creditors and other users in making rational investment, credit, and similar decisions. The information should be comprehensible to those who have a reasonable understanding of business and economic activities and are willing to study the information with reasonable diligence. 2. to help present and potential investors and creditors and other users in assessing the amounts, timing, and uncertainty of prospective cash receipts from dividends or interest and the proceeds from the sale, redemption, or maturity of securities or loans. Since investors and creditors cash flows are related to enterprise cash flows, financial reporting should provide information to help investors, creditors, and others assess the amounts, timing, and uncertainty of prospective net cash inflows to the related enterprise. 3. about the economic resources of an enterprise, the claims to those resources (obligations of the enterprise to transfer resources to other entities and owners equity), and the effects of trans-actions, events, and circumstances that change its resources and claims to those resources. 1 (b) Statement of Financial Accounting Concepts No. 1 established standards to meet the information needs of large groups of external users such as investors, creditors, and their representatives. Although the level of sophistication related to business and financial accounting matters varies both within and between these user groups, users are expected to possess a reasonable understanding of accounting concepts, financial statements, and business and economic activities and are expected to be willing to study and interpret the information with reasonable diligence. CA 1-9 (a) AICPA.American Institute of Certified Public Accountants. The national organization of practicing certified public accountants. (b) CAP.Committee on Accounting Procedure. A committee of practicing CPAs which issued 51 Accounting Research Bulletins between 1939 and 1959 and is a predecessor of the FASB. (c) ARB.Accounting Research Bulletins. Official pronouncements of the Committee on Accounting Procedure which, unless superseded, remain a primary source of GAAP. (d) APB.Accounting Principles Board. A committee of public accountants, industry accountants and academicians which issued 31 Opinions between 1959 and 1973. The APB replaced the CAP and was itself replaced by the FASB. Its opinions, unless superseded, remain a primary source of GAAP. (e) FAF.Financial Accounting Foundation. An organization whose purpose is to select members of the FASB and its Advisory Councils, fund their activities, and exercise general oversight. (f) FASAC.Financial Accounting Standards Advisory Council. An organization whose purpose is to consult with the FASB on issues, project priorities, and select task forces. (g) SOP.Statements of Position. Statements issued by the AICPA (through the Accounting Standards Executive Committee of its Accounting Standards Division) which are generally devoted to emerging problems not addressed by the FASB or the SEC. (h) GAAP.Generally accepted accounting principles. A common set of standards, principles, and procedures which have substantial authoritative support and have been accepted as appropriate because of universal application. 2 (i) CPA.Certified public accountant. An accountant who has fulfilled certain education and experience requirements and passed a rigorous examination. Most CPAs offer auditing, tax, and management consulting services to the general public. ( j) FASB.Financial Accounting Standards Board. The primary body which currently establishes and improves financial accounting and reporting standards for the guidance of issuers, auditors, users, and others. (k) SEC.Securities and Exchange Commission. An independent regulatory agency of the United States government which administers the Securities Acts of 1933 and 1934 and other acts. (l) IASB.International Accounting Standards Board. An international group, formed in 1973, that is actively developing and issuing accounting standards that will have international appeal and hopefully support. 3 Chapter 2 BE2- 2 Identify which qualitative characteristic of accounting information is best described in each item below. ( Do not use relevance and reliability.) ( a) The annual reports of Best Buy Co. are audited by certified public accountants. ( b) Black & Decker and Cannondale Corporation both use the FIFO cost flow assumption. ( c) Starbucks Corporation has used straight- line depreciation since it began operations. ( d) Motorola issues its quarterly reports immediately after each quarter ends. BE2- 3 For each item below, indicate to which category of elements of financial statements it belongs. ( a) Retained earnings ( e) Depreciation ( h) Dividends ( b) Sales ( f) Loss on sale of equipment ( i) Gain on sale of investment ( c) Additional paid- in capital ( g) Interest payable ( j) Issuance of common stock ( d) Inventory BE2- 4 Identify which basic assumption of accounting is best described in each item below. ( a) The economic activities of FedEx Corporation are divided into 12- month periods for the purpose of issuing annual reports. ( b) Solectron Corporation, Inc. does not adjust amounts in its financial statements for the effects of inflation. ( c) Walgreen Co. reports current and noncurrent classifications in its balance sheet. ( d) The economic activities of General Electric and its subsidiaries are merged for accounting and reporting purposes. BE2- 5 Identify which basic principle of accounting is best described in each item below. ( a) Norfolk Southern Corporation reports revenue in its income statement when it is earned instead of when the cash is collected. ( b) Yahoo, Inc. recognizes depreciation expense for a machine over the 2- year period during which that machine helps the company earn revenue. ( c) Oracle Corporation reports information about pending lawsuits in the notes to its financial statements. ( d) Eastman Kodak Company reports land on its balance sheet at the amount paid to acquire it, even though the estimated fair value is greater. BE2- 7 What accounting constraints are illustrated by the items below? ( a) Grecos Farms, Inc. reports agricultural crops on its balance sheet at fair value. ( b) Rafael Corporation does not accrue a contingent lawsuit gain of $ 650,000. ( c) Willis Company does not disclose any information in the notes to the financial statements unless the value of the information to financial statement users exceeds the expense of gathering it. ( d) Favre Corporation expenses the cost of wastebaskets in the year they are acquired. E2- 4 ( Assumptions, Principles, and Constraints) Presented below are the assumptions, principles, and constraints used in this chapter. 1. Economic entity assumption 5. Historical cost principle 9. Cost- benefit relationship 2. Going concern assumption 6. Fair value principle 10. Materiality 3. Monetary unit assumption 7. Expense recognition principle 11. Industry practices 4. Periodicity assumption 8. Full disclosure principle 12. Conservatism Instructions 4 Identify by number the accounting assumption, principle, or constraint that describes each situation on the next page. Do not use a number more than once. ( a) Allocates expenses to revenues in the proper period. ( b) Indicates that fair value changes subsequent to purchase are not recorded in the accounts. ( Do not use revenue recognition principle.) ( c) Ensures that all relevant financial information is reported. ( d) Rationale why plant assets are not reported at liquidation value. ( Do not use historical cost principle.) ( e) Anticipates all losses, but reports no gains. ( f) Indicates that personal and business record keeping should be separately maintained. ( g) Separates financial information into time periods for reporting purposes. ( h) Permits the use of fair value valuation in certain industries. ( Do not use fair value principle.) ( i) Requires that information significant enough to affect the decision of reasonably informed users should be disclosed. ( Do not use full disclosure principle.) ( j) Assumes that the dollar is the measuring stick used to report on financial performance. E2- 7 ( Accounting Principles Comprehensive) Presented below are a number of business transactions that occurred during the current year for Gonzales, Inc. Instructions In each of the situations, discuss the appropriateness of the journal entries in terms of generally accepted accounting principles. ( a) The president of Gonzales, Inc. used his expense account to purchase a new Suburban solely for personal use. The following journal entry was made. Miscellaneous Expense 29,000 Cash 29,000 ( b) Merchandise inventory that cost $ 620,000 is reported on the balance sheet at $ 690,000, the expected selling price less estimated selling costs. The following entry was made to record this increase in value. Merchandise Inventory 70,000 Revenue 70,000 ( c) The company is being sued for $ 500,000 by a customer who claims damages for personal injury apparently caused by a defective product. Company attorneys feel extremely confident that the company will have no liability for damages resulting from the situation. Nevertheless, the company decides to make the following entry. Loss from Lawsuit 500,000 Liability for Lawsuit 500,000 ( d) Because the general level of prices increased during the current year, Gonzales, Inc. determined that there was a $ 16,000 understatement of depreciation expense on its equipment and decided to record it in its accounts. The following entry was made. Depreciation Expense 16,000 Accumulated Depreciation 16,000 ( e) Gonzales, Inc. has been concerned about whether intangible assets could generate cash in case of liquidation. As a consequence, goodwill arising from a purchase transaction during the current year and recorded at $ 800,000 was written off as follows. Retained Earnings 800,000 Goodwill 800,000 ( f) Because of a fire sale, equipment obviously worth $ 200,000 was acquired at a cost of $ 155,000. The following entry was made. Equipment 200,000 5 Cash Revenue 155,000 45,000 Comparative Analysis Case The Coca- Cola Company and PepsiCo, Inc. Instructions Go to the books companion website, and use information found there to answer the following questions related to The Coca- Cola Company and PepsiCo, Inc. ( a) What are the primary lines of business of these two companies as shown in their notes to the financial statements? ( b) Which company has the dominant position in beverage sales? ( c) How are inventories for these two companies valued? What cost allocation method is used to report inventory? How does their accounting for inventories affect comparability between the two companies? ( d) Which company changed its accounting policies during 2007 which affected the consistency of the financial results from the previous year? What were these changes? SOLUTIONS BRIEF EXERCISE 2-2 (a) (b) (c) (d) Verifiability Comparability Consistency Timeliness BRIEF EXERCISE 2-3 (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) Equity Revenues Equity Assets Expenses Losses Liabilities Distributions to owners Gains Investments by owners BRIEF EXERCISE 2-4 (a) (b) (c) (d) Periodicity Monetary unit Going concern Economic entity 6 BRIEF EXERCISE 2-5 (a) (b) (c) (d) Revenue recognition Expense recognition Full disclosure Historical cost BRIEF EXERCISE 2-7 (a) (b) (c) (d) Industry practices Conservatism Cost-benefit relationship Materiality EXERCISE 2-4 (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) 7. 5. 8. 2. 12. 1. 4. 11. 10. Expense recognition principle. Historical cost principle. Full disclosure principle. Going concern assumption. Conservatism. Economic entity assumption. Periodicity assumption. Industry practices. Materiality. 3. Monetary unit assumption. EXERCISE 2-7 (a) This entry violates the economic entity assumption. This assumption in accounting indicates that economic activity can be identified with a particular unit of accountability. In this situation, the company erred by charging this cost to the wrong economic entity. The historical cost principle indicates that assets and liabilities are accounted for on the basis of cost. If we were to select sales value, for example, we would have an extremely difficult time in attempting to establish a sales value for a given item without selling it. It should further be noted that the revenue recognition principle provides the answer to when revenue should be recognized. Revenue should be recognized when (1) realized or realizable and (2) earned. In this situation , an earnings process has definitely not taken place. Probably the company is too conservative in its accounting for this transaction. The matching principle indicates that expenses should be allocated to the appropriate periods involved. In this case, there appears to be a high uncertainty 7 (b) (c) that the company will have to pay. FASB Statement No. 5 requires that a loss should be accrued only (1) when it is probable that the company would lose the suit and (2) the amount of the loss can be reasonably estimated. (d) At the present time, accountants do not recognize price-level adjust-ments in the accounts. Hence, it is misleading to deviate from the cost principle because conjecture or opinion can take place. It should also be noted that depreciation is not so much a matter of valuation as it is a means of cost allocation. Assets are not depreciated on the basis of a decline in their fair market value, but are depreciated on the basis of systematic charges of expired costs against revenues. Most accounting methods are based on the assumption that the busi-ness enterprise will have a long life. Acceptance of this assumption provides credibility to the historical cost principle, which would be of limited usefulness if liquidation were assumed. Only if we assume some permanence to the enterprise is the use of depreciation and amortization policies justifiable and appropriate. Therefore, it is incorrect to assume liquidation as Gonzales, Inc. has done in this situation. It should be noted that only where liquidation appears imminent is the going concern assumption inapplicable. The answer to this situation is the same as (b). (e) (f) COMPARATIVE ANALYSIS CASE (a) Coca-Cola indicates its business is nonalcoholic beverages, principally soft drinks, but also a variety of noncarbonated beverages. It notes that it is the worlds leading manufacturer, marketer and distributor of soft-drink beverage concentrates and syrups as well as the worlds largest marketer and distributor of juice and juice-drink products. In its segment supporting note to the financial statements, however, it does not provide a breakdown of beverage drinks into soft drinks and noncarbonated beverages. Rather segments are defined based on the following geographic areas: the North American Group; the Africa Group; the European Union, Eurasia Group, the Pacific Group; the Latin America Group; and Corporate. PepsiCo views itself as a leading global snack and beverage company. It manufactures, markets, and sells a variety of salty, sweet and grain-based snacks, carbonated and noncarbonated beverages and foods. It is organized in four divisions: Frito-Lay North America, PepsiCo Beverages North America, 8 PepsiCo International, and Quaker Foods North America. The North American divisions operate in the United States and Canada. The international divisions operate in approximately 200 countries, with the largest operations in Mexico and the United Kingdom. (b) Coca-Colas net operating revenues for 2007 was $28,857 million which was comprised principally of beverage sales. PepsiCo reported net sales of $39,474 million of which soft drinks is an estimated $26,028 ($15,798 + 10,230) million. The remainder is related to sales in the Frito-Lay and Quaker Foods segments. Based on these amounts, Coca-Cola has the dominant position in beverage sales. Coca-Cola values inventory at the lower of cost or market. In general, cost is determined on the basis of average cost or first-in first-out methods. PepsiCo also values its inventory at the lower of cost or market. Approximately 14% in 2007 and 19% in 2006 of the inventory cost was computed using the LIFO method. The differences between LIFO and FIFO methods of valuing these inventories are not material. Because PepsiCo uses LIFO for part of its inventory, if material, it would be necessary to adjust as best as possible to FIFO. An additional problem is that both use the average cost for some of their inventory, but information related to its percentage use is not provided. (d) Both PepsiCo and Coca-Cola were affected by the promulgation of new accounting standards by the FASB in 2007. Description of these standard adoptions is discussed below. Coca-Cola Recent Accounting Standards and Pronouncements In December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations. SFAS No. 141(R) amends the principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any noncontrolling interest in the acquiree and the goodwill acquired. SFAS No. 41(R) also establishes disclosure requirements to enable the evaluation of the nature and financial effects of the business combination. SFAS No. 41(R) is effective for our Company on January 1, 2009, and the Company will apply prospectively to all business combinations subsequent to the effective date. In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statementsan amendment of Accounting Research Bulletin No. 51. SFAS No. 160 establishes accounting and reporting standards 9 (c) for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. PepsiCo Recent Accounting Pronouncements In September 2006, the SEC issued SAB 108 to address diversity in practice in quantifying financial statement misstatements. SAB 108 requires that we quantify misstatements based on their impact on each of our financial statements and related disclosure. On December 30, 2006, we adopted SAB 108. Our adoption of SAB 108 did not impact our financial statements. In September 2006, the FASB issued SFAS 157 which defines fair value, establishes a framework for measuring fair value, and expands disclosure about fair value measurements. The provisions of SFAS 157 are effective as of the beginning of our 2008 fiscal year. However, the FASB has deferred the effective date of SFAS 157, until the beginning of our 2009 fiscal year, as it relates to fair value measurement requirements for nonfinancial assets and liabilities that are not remeasured at fair value on a recurring basis. We are currently evaluating the impact of adopting SFAS 157 on our financial statements. We do not expect our adoption to have a material impact on our financial statements. In February 2007, the FASB issued SFAS 159 which permits entities to choose to measure many financial instruments and certain other items at fair value. The provisions of SFAS 159 are effective as of the beginning of our 2008 fiscal year. Our adoption of SFAS 159 will not impact our financial statements. In December 2007, the FASB issued SFAS 141R and SFAS 160 to improve, simplify, and converge internationally the accounting for business combinations and the reporting of noncontrolling interests in consolidated financial statements. The provisions of SFAS 141R and SFAS 160 are effective as of the beginning of our 2009 fiscal year. We are currently evaluating the impact of adopting SFAS 141R and SFAS 160 on our financial statements. 10 Chapter 3 BE3- 2 Agazzi Repair Shop had the following transactions during the first month of business as a proprietorship. Journalize the transactions. ( Omit explanations.) Aug. 2 Invested $ 12,000 cash and $ 2,500 of equipment in the business. 7 Purchased supplies on account for $ 500. ( Debit asset account.) 12 Performed services for clients, for which $ 1,300 was collected in cash and $ 670 was billed to the clients. 15 Paid August rent $ 600. 19 Counted supplies and determined that only $ 270 of the supplies purchased on August 7 are still on hand. BE3- 9 Prepare the following adjusting entries at August 31 for Walgreens. ( a) Interest on notes payable of $ 300 is accrued. ( b) Fees earned but unbilled total $ 1,400. ( c) Salaries earned by employees of $ 700 have not been recorded. ( d) Bad debt expense for year is $ 900. Use the following account titles: Service Revenue, Accounts Receivable, Interest Expense, Interest Payable, Salaries Expense, Salaries Payable, Allowance for Doubtful Accounts, and Bad Debt Expense. E3- 7 ( Analyze Adjusted Data) A partial adjusted trial balance of Safin Company at January 31, 2010, shows the following. Instructions Answer the following questions, assuming the year begins January 1. ( a) If the amount in Supplies Expense is the January 31 adjusting entry, and $ 850 of supplies was purchased in January, what was the balance in Supplies on January 1? ( b) If the amount in Insurance Expense is the January 31 adjusting entry, and the original insurance premium was for one year, what was the total premium and when was the policy purchased? ( c) If $ 2,700 of salaries was paid in January, what was the balance in Salaries Payable at December 31, 2009? ( d) If $ 1,600 was received in January for services performed in January, what was the balance in Unearned Revenue at December 31, 2009? P3- 11 ( Worksheet, Balance Sheet, Adjusting and Closing Entries) Cooke Company has a fiscal year ending on September 30. Selected data from the September 30 work sheet are presented below. Instructions ( a) Prepare a complete worksheet. ( b) Prepare a classified balance sheet. ( Note: $ 10,000 of the mortgage payable is due for payment in the next fiscal year.) ( c) Journalize the adjusting entries using the worksheet as a basis. ( d) Journalize the closing entries using the worksheet as a basis. ( e) Prepare a post- closing trial balance. 11 Comparative Analysis Case The Coca- Cola Company and PepsiCo, Inc. Instructions Go to the books companion website and use information found there to answer the following questions related to The Coca- Cola Company and PepsiCo, Inc. ( a) Which company had the greater percentage increase in total assets from 2006 to 2007? ( b) Using the Selected Financial Data section of these two companies, determine their 5year average growth rates related to net sales and income from continuing operations. ( c) Which company had more depreciation and amortization expense for 2007? Provide a rationale as to why there is a difference in these amounts between the two companies. 12 SOLUTIONS BRIEF EXERCISE 3-2 Aug. 2 Cash Equipment Agazzi, Capital Supplies Accounts Payable Cash Accounts Receivable Service Revenue 12,000 2,500 14,500 500 500 1,300 670 1,970 600 600 230 230 7 12 15 19 Rent Expense............................................................................. Cash................................................................................. Supplies Expense....................................................................... Supplies ($500 $270).................................................... BRIEF EXERCISE 3-9 Aug. 31 31 31 31 Interest Expense......................................................................... Interest Payable................................................................ Accounts Receivable................................................................. Service Revenue............................................................... Salaries Expense........................................................................ Salaries Payable............................................................... Bad Debt Expense..................................................................... Allowance for Doubtful Accounts................................... 300 300 1,400 1,400 700 700 900 900 EXERCISE 3-7 (a) Ending balance of supplies........................................................... Add: Adjusting entry................................................................... Deduct: Purchases........................................................................ Beginning balance of supplies...................................................... $ 900 950 850 1,000 13 (b) Total prepaid insurance................................................................. Amount used (6 X $400).............................................................. Present balance............................................................................. The policy was purchased six months ago (August 1, 2009) $4,800 2,400 2,400 ($400 X 12) (c) The entry in January to record salary expense was Salaries Expense........................................................................... Salaries Payable............................................................................ Cash...................................................................................... The T account for salaries payable is Paid January Salaries Payable 900 Beg. Bal. End Bal. The beginning balance is therefore Ending balance of salaries payable.......................................... Plus: Reduction of salaries payable........................................ Beginning balance of salaries payable..................................... $ 800 900 $1,700 $2,000 1,600 $ 400 $ 750 400 $1,150 ? 800 1,800 900 2,700 (d) Service revenue................................................................... Cash received...................................................................... Unearned revenue reduced.................................................. Ending unearned revenue January 31, 2010................................................. Plus: Unearned revenue reduced.................................................................. Beginning unearned revenue December 31, 2009....................................... PROBLEM 3-11 14 Bal anc e Sh eet C r . 3 D7 4,2 r, 00 .4 0 C r . D r . C r . 3 D7 4,2 r, 00 .4 0 C 14, r 40 . 0 (b) D r . 3 , 9 0 0 2 8 , 0 ( a ) 8 0 , 0 0 1 2 0 , 0 3 , 9 0 0 8 0 , 0 0 1 2 0 , 0 4 2 , 0 0 0 1 4 , 6 0 0 7 0 0 5 0 , 0 0 0 1 0 9 , 7 0 0 1 4 , 0 0 6 , 0 0 0 3 , 0 0 0 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ 3 , 0 0 0 _ _ _ _ _ 3 , 0 0 ( e ) _ _ _ _ _ Inc om e Sta te me nt Ad jus ted Tri al Bal anc e 2 8 0 , 5 4 2 , 0 0 1 4 , 6 0 7 0 0 5 0 , 0 0 1 0 9 , 7 Ad jus tm ent s 5 , 8 0 ( c ) 2 , 0 0 0 1 4 , 0 0 2 8 0 , 5 1 0 9 , 0 3 0 , 5 0 9 , 4 0 0 1 6 , 9 0 2 1 12 , ,0 0 00 0 2 8 , 0 0 2 , 0 0 ( d ) 1 0 9 , 0 3 0 , 5 0 9 , 4 0 0 1 6 , 9 0 2 1 12 , ,0 0 00 0 2 8 , 0 0 3 6, , 00 00 0 0 2 8 , 0 0 0 1 4 , 4 06 , 0 0 10 4 , 4 0 6 , 0 0 ( f ) 1 4 , 4 0 0 5, 80 0 5, 80 0 2 2 6 , 0 0 0 2 5 9 , 5 2 8 0 , 5 2 4 7 , 0 5 0 6 , 5 0 6 , 5 5 9 , 2 3 3 , 5 0 0 _ _ _ _ _ _ _ _ _ _ 3 3 , 5 0 2 5 9 , 5 0 0 2 5 9 , 5 2 8 0 , 5 2 8 0 , 5 5, 80 0 5 9 , 2 0 0 15 K ey : (a ) E x pi re d In su ra n ce ; (b ) S u p pl ie s U se d; (c ) D e p re ci at io n E x p e ns T a x e s ; ( f ) A c c r u e d I n t e r e s t P a y a b l e . Tri al Bal anc e C r . 3 D 7 18, r , 60 .40 0 3 1 , 9 0 P r e p a i d I n s u r a n c 8 0 , 0 0 1 2 0 , 0 Ac co unt Tit les C Su a ppl s ies h 1 0 9 , 0 AAUM AS ccnoCCda c c e r o o ml Euoat ooi a q mu r g k k s r u.nnaeesi L i Dt e g, , i e a pe s de CDos n mp arn d e r PAPpa s E x neadaiw t cy. yt i Rp i aRaanee abeblgvn tlvl es ie.e ne 3 6 , 2 0 1 4 , 6 0 ( d ) 2 , 7 0 0 5 0 , 0 0 1 0 9 , 7 1 4 , 0 0 2 7 8 , 5 ( e (f) ) __ __ __ 3 0 , 5 0 R e p a i r 9 , 4 0 0 A d v e r t i s Ei xn pg e nE sx ep e 1 6 , 9 0 U t i l i t i e s E x p e n s 1 8 , 0 0 P r o p . T a x e s E x p e n 6, 00 0 4 9 1 , 7 4 9 1 , 7 ( a ) ( b ) (c) Int er est Ex pe ns e I n s u r Ta on tc ae l sE x p e n s S u p p l i e s E x p e n s e I n t e r e s t P a y a b l e D ep re ci ati on Ex pe ns e P r o p . T a x e s N e TtT o o tIt ana l cl s os m P e a y a b e d; (d ) A d m is si o n R ev e 16 (b) COOKE COMPANY Balance Sheet September 30, 2010 Assets Current assets Cash Supplies Prepaid insurance Total current assets Property, plant, and equipment Land Equipment Less: Accum. depreciation Total assets $37,400 4,200 3,900 $ 45,500 80,000 $120,000 42,000 78,000 158,000 $203,500 Liabilities and Owners Equity Current liabilities Accounts payable Current maturity of longterm debt Interest payable Property taxes payable Unearned admissions revenue Total current liabilities Long-term liabilities Mortgage payable Total liabilities Owners equity $14,600 10,000 6,000 3,000 700 $ 34,300 40,000 74,300 17 Cooke, Capital ($109,700 + $33,500 $14,000) $203,500 Total liabilities and owners equity (c) Sep. 30 Insurance Expense Prepaid Insurance 30 Supplies Expense Supplies 30 Depreciation Expense Accum. Depreciation Sep. 30 Admissions Revenue Income Summary 30 Income Summary Salaries Expense Repair Expense Insurance Expense Property Taxes Expense Supplies Expense Utilities Expense Interest Expense Advertising Expense Depreciation Expense 30 Unearned Admissions Revenue Admissions Revenue 30 Property Taxes Expense Property Taxes Payable 30 Interest 3,000 3,000 6,000 18 2,000 2,000 28,000 28,000 14,400 14,400 5,800 5,800 129,200 30 Depreciation Expense Expense Interest Payable 30 Income Summary Cooke, Capital 30 Cooke, Capital Cooke, Drawing 5,800 6,000 33,500 33,500 14,000 14,000 (e) COOKE COMPANY Post-Closing Trial Balance September 30, 2010 Debit Credit $ 37,400 4,200 3,900 80,000 120,000 $ 42,000 14,600 700 6,000 3,000 50,000 129,200 $245,500 Cash................................................ ........................................................ Supplies Prepaid Insurance Land............................................... ........................................................ Equipment Accumulated Depreciation Accounts Payable Unearned Admissions Revenue Interest Payable Property Taxes Payable Mortgage Payable Cooke, Capital $245,500 COMPARATIVE ANALYSIS CASE (a) The Coca-Cola Company percentage increase is computed as follows: $43,269 $29,963 19 Total assets (December 31, 2007)............................................................................ Total assets (December 31, 2006)............................................................................ Difference................................................................................................................ $13,306 $13,306 $29,963 = $44.4% PepsiCo, Inc.s percentage increase is computed as follows: Total assets (December 29, 2007)............................................................................ Total assets (December 30, 2006)............................................................................ Difference................................................................................................................ $4,698 $29,930 = $15.7% Coca-Cola Company had the larger increase. (b) 5-Year Growth Rate The Coca-Cola Company Net sales Income from continuing operations (c) 7.7% 7.8% PepsiCo, Inc. 9.3% 11.7% $34,628 $29,930 $ 4,698 The Coca-Cola Company had depreciation and amortization expense of $1,163 million; PepsiCo, Inc. had depreciation and amortization expense of $1,426 million. PepsiCo has substantially more property, plant, and equipment and intan-gible assets than does Coca-Cola. PepsiCo is engaged in three different types of businesses: soft drinks, snack-food, and juices. As a result, it has more tangible fixed assets. In addition, PepsiCo has substantial intangible assets. Amortizable intangible assets for Coke and Pepsi increase the amount of amortization expense recorded in income. The amount of property, plant, and equipment and amortizable intangible assets reported for these two companies is as follows: The Coca-Cola Company Property, plant, and equipment (net) Amortizable intangible $ 8,493,000,000 2,810,000,000 PepsiCo, Inc. $11,228,000,000 796,000,000 20 assets (net) $11,303,000,000 $12,024,000,000 21 Chapter 4 BE4- 1 Starr Co. had sales revenue of $ 540,000 in 2010. Other items recorded during the year were: Cost of goods sold $ 330,000 Wage expense 120,000 Income tax expense 25,000 Increase in value of company reputation 15,000 Other operating expenses 10,000 Unrealized gain on value of patents 20,000 Prepare a single- step income statement for Starr for 2010. Starr has 100,000 shares of stock outstanding. BE4- 5 Stacy Corporation had income before income taxes for 2010 of $ 6,300,000. In addition, it suffered an unusual and infrequent pretax loss of $ 770,000 from a volcano eruption. The corporations tax rate is 30%. Prepare a partial income statement for Stacy beginning with income before income taxes. The corporation had 5,000,000 shares of common stock outstanding during 2010. E4- 5 ( Multiple- step and Extraordinary Items) The following balances were taken from the books of Parnevik Corp. on December 31, 2010. Accumulated depreciationInterest revenue $86,000 building Cash 51000 Notes receivable 128000 Sales 0 Selling expenses Accounts receivable 150000 Accounts payable Prepaid insurance 20000 Bonds payable Administrative and general Sales returns and allowances 150000 expenses Allowance for doubtful accounts 7000 Accrued liabilities Sales discounts 45000 Interest expense Land 100000 Notes payable Equipment 200000 Loss from earthquake damage Building 140000 (extraordinary item) Cost of goods sold 621000 Common stock Accumulated depreciationequipment 40000 Retained earnings Assume the total effective tax rate on all items is 34%. Instructions Prepare a multiple- step income statement; 100,000 shares of common stock were outstanding during the year. E4- 7 ( Income Statement, EPS) Presented below are selected ledger accounts of McGraw Corporation as of December 31, 2010. Instructions 22 28000 155000 194000 170000 100000 97000 32000 60000 100000 120000 500000 21000 ( a) Compute net income for 2010. ( b) Prepare a partial income statement beginning with income from continuing operations before income tax, and including appropriate earnings per share information. Assume 20,000 shares of common stock were outstanding during 2010. Net income for 2010 reflects a total effective tax rate of 34%. Included in the net income figure is a loss of $ 12,000,000 ( before tax) as a result of a major casualty, which should be classified as an extraordinary item. Preferred stock dividends of $ 270,000 were declared and paid in 2010. Dividends of $ 1,000,000 were declared and paid to common stockholders in 2010. Instructions Compute earnings per share data as it should appear on the income statement of Sosa Corporation. CA4- 3 ( Extraordinary Items) Derek Lee, vice- president of finance for Chicago Company, has recently been asked to discuss with the companys division controllers the proper accounting for extraordinary items. Derek Lee prepared the factual situations presented below as a basis for discussion. 1. An earthquake destroys one of the oil refineries owned by a large multinational oil company. Earthquakes are rare in this geographical location. 2. A publicly held company has incurred a substantial loss in the unsuccessful registration of a bond issue. 3. A large portion of a cigarette manufacturers tobacco crops are destroyed by a hailstorm. Severe damage from hailstorms is rare in this locality. 4. A large diversified company sells a block of shares from its portfolio of securities acquired for investment purposes. 5. A company that operates a chain of warehouses sells the excess land surrounding one of its ware-houses. When the company buys property to establish a new warehouse, it usually buys more land than it expects to use for the warehouse with the expectation that the land will appreciate in value. Twice during the past 5 years the company sold excess land. 6. A company experiences a material loss in the repurchase of a large bond issue that has been out-standing for 3 years. The company regularly repurchases bonds of this nature. 7. A railroad experiences an unusual flood loss to part of its track system. Flood losses normally occur every 3 or 4 years. 8. A machine tool company sells the only land it owns. The land was acquired 10 years ago for future expansion, but shortly thereafter the company abandoned all plans for expansion but decided to hold the land for appreciation. Instructions Determine whether the foregoing items should be classified as extraordinary items. Present a rationale for your position. CA4- 4 ( Earnings Management) Bobek Inc. has recently reported steadily increasing income. The company reported income of $ 20,000 in 2007, $ 25,000 in 2008, and $ 30,000 in 2009. A number of market analysts have recommended that investors buy the stock because they expect the steady growth in income to continue. Bobek is approaching 23 the end of its fiscal year in 2010, and it again appears to be a good year. However, it has not yet recorded warranty expense. Based on prior experience, this years warranty expense should be around $ 5,000, but some managers have approached the controller to suggest a larger, more conservative warranty expense should be recorded this year. Income before warranty expense is $ 43,000. Specifically, by recording a $ 7,000 warranty accrual this year, Bobek could report an increase in income for this year and still be in a position to cover its warranty costs in future years. Instructions ( a) What is earnings management? ( b) Assume income before warranty expense is $ 43,000 for both 2010 and 2011 and that total warranty expense over the 2- year period is $ 10,000. What is the effect of the proposed accounting in 2010? In 2011? ( c) What is the appropriate accounting in this situation? Comparative Analysis Case The Coca- Cola Company and PepsiCo, Inc. Instructions Go to the books companion website and use information found there to answer the following questions related to The Coca- Cola Company and PepsiCo, Inc. ( a) What type of income format( s) is used by these two companies? Identify any differences in income statement format between these two companies. ( b) What are the gross profits, operating profits, and net incomes for these two companies over the 3- year period 2005 2007? Which company has had better financial results over this period of time? ( c) Identify the irregular items reported by these two companies in their income statements over the 3- year period 2005 2007. Do these irregular items appear to be significant? SOLUTIONS BRIEF EXERCISE 4-1 STARR CO. Income Statement For the Year 2010 Revenues Sales Expenses Cost of goods sold.......................................................................... Wage expense................................................................................. Other operating expenses............................................................... Income tax expense........................................................................ Total expenses.................................................................... $540,000 $330,000 120,000 10,000 25,000 485,000 24 Net income................................................................................................... Earnings per share........................................................................................ $55,000 $0.55* *$55,000 100,000 shares. Note: The increase in value of the company reputation and the unrealized gain on the value of patents are not reported. BRIEF EXERCISE 4-5 Income before income tax and extraordinary item Income tax expense................................................................................ Income before extraordinary item.......................................................... Extraordinary itemloss from casualty................................................ Less: Applicable income tax...................................................... Net income............................................................................................. Earnings per share.................................................................................. Income before extraordinary item.............................................. Extraordinary loss, net of tax..................................................... Net income................................................................................. *Rounded EXERCISE 4-5 PARNEVIK CORP. Income Statement For the Year Ended December 31, 2010 Sales Revenue Sales................................................................................................... Less: Sales returns and allowances................................................... Sales discounts.................................................................. Net sales revenue............................................................................... Cost of goods sold............................................................................. Gross profit.............................................................................................. Operating Expenses Selling expenses.......................................................................... Admin. and general expenses...................................................... Income from operations........................................................................... Other Revenues and Gains Interest revenue................................................................................ 25 $1,280,000 $150,000 45,000 195,000 1,085,000 621,000 464,000 $6,300,000 1,890,000 4,410,000 $770,000 231,000 539,000 $3,871,000 $0.88* (0.11)* $0.77 194,000 97,000 291,000 173,000 86,000 259,000 Other Expenses and Losses Interest expense................................................................................ Income before tax and extraordinary item................................................. Income tax ($199,000 X .34)........................................................... Income before extraordinary item.............................................................. Extraordinary itemloss from earthquake damage.................................... Less: Applicable tax reduction ($120,000 X .34)............................. Net income................................................................................................. Per share of common stock: Income before extraordinary item ($131,340 100,000)................................................................... Extraordinary item (net of tax)........................................................ Net income ($52,140 100,000)..................................................... *Rounded EXERCISE 4-7 (a) Net sales..................................................................................................... $ 540,000 Less: Cost of goods sold............................................................................ (260,000) Administrative expenses............................................................. (100,000) Selling expenses.......................................................................... (80,000) Discontinued operations-loss...................................................... (40,000) Income before income tax.......................................................................... 60,000 Income tax ($60,000 X .30)....................................................................... 18,000 Net income................................................................................................. $ 42,000 Income from continuing operations before income tax.................................................................................... $100,000* Income tax ($100,000 X .30)..................................................................... 30,000 Income from continuing operations........................................................... 70,000 Discontinued operations, less applicable income tax of $12,000.......................................................................................... (28,000) Net income................................................................................................. $ 42,000 *$60,000 + $40,000 Earnings per share: Income from continuing operations ($70,000 20,000).............................................................................. Loss on discontinued operations, net of tax........................................... Net Income ($42,000 20,000)............................................................. 60,000 199,000 67,660 131,340 120,000 40,800 $ 79,200 52,140 $1.31* (0.79) $0.52 (b) $ 3.50 (1.40) $ 2.10 26 EXERCISE 4-9 Computation of net income: 2010 net income after tax......................................................... 2010 net income before tax [$33,000,000 (1 .34)]...................................................... Add back major casualty loss................................................... Income from operations........................................................ Income taxes (34% X $62,000,000)......................................... Income before extraordinary item............................................ Extraordinary item: Casualty loss......................................................................... Less: Applicable income tax reduction.................................. Net income................................................................................ $33,000,000 50,000,000 12,000,000 62,000,000 21,080,000 40,920,000 $12,000,000 4,080,000 7,920,000 $33,000,000 $33,000,000 270,000 32,730,000 10,000,000 $3.27* Net income........................................................................................................ Less: Provision for preferred dividends (6% of $4,500,000)................................................................................. Income available to common stockholders................................................ Common stock shares................................................................................. Earnings per share...................................................................................... Income statement presentation Per share of common stock: Income before extraordinary item........................................................ Extraordinary item, net of tax............................................................... Net income............................................................................................ b $40,920,000 $270,000 $7,920,000 = $0.79* = $4.06* 10,000,000 10,000,000 *Rounded CA 4-3 1. Classify as an extraordinary item because the two conditions of an extraordinary item, unusual in nature and infrequent in occurrence, are met. a $4.06a (0.79)b $3.27 2. 3. 4. Classify as a loss, but not extraordinary. Such losses would not be considered unusual for a business enterprise. Classify as an extraordinary loss because the two conditions of an extraordinary item, unusual in nature and infrequent in occurrence, are met. Classify as gain or loss, but not extraordinary. Because the company maintains a portfolio of such securities, the gain or loss would not be considered unusual in nature. 27 5. 6. 7. 8. Classify as a gain or loss, but not extraordinary. Company practices indicate such sales are not unusual or infrequent in occurrence. Losses on extinguishment of debt should not be classified as extraordinary items. Classify as a loss, but not extraordinary. The loss is not an infrequent occurrence taking into account the environment in which the entity operates. Classify as an extraordinary item if the two conditions of an extraordinary item, unusual in nature and infrequent in occurrence, are met. Conditions do not appear met in this case. CA 4-4 (a) Earnings management is often defined as the planned timing of revenues, expenses, gains and losses to smooth out bumps in earnings. In most cases, earnings management is used to increase income in the current year at the expense of income in future years. For example, companies prematurely recognize sales before they are complete in order to boost earnings. Earnings management can also be used to decrease current earnings in order to increase income in the future. The classic case is the use of cookie jar reserves, which are established, by using unrealistic assumptions to estimate liabilities for such items as sales returns, loan losses, and warranty costs. (b) Proposed Accounting Income before warranty expense Warranty expense Income 2007 $20,000 2008 $25,000 2009 $30,000 2010 $43,000 7,000 $36,000 2011 $43,000 3,000 $40,000 Assuming the same income before warranty expense for both 2010 and 2011 and total warranty expense over the 2-year period of $10,000, this proposed accounting results in steadily increasing income over the two-year period. (c) Appropriate Accounting 2007 2008 2009 2010 Income before warranty expense $43,000 Warranty expense 5,000 Income $20,000 $25,000 $30,000 $38,000 The appropriate accounting would be to record $5,000 of warranty expense in 2010, resulting in income of $38,000. However, with the same amount of warranty expense in 2011, Bobek no longer shows an increasing trend in income. Thus, by taking more expense in 2010, Bobek can save some income (a classic case of cookie-jar reserves) and maintain growth in income. 2011 $43,000 5,000 $38,000 28 COMPARATIVE ANALYSIS CASE (a) Both companies are using the multiple-step format in presenting income statement information. Companies use the multiple-step income statement to recognize additional relationships related to revenues and expenses. Both companies distinguish between operating and nonoperating transactions. As a result, trends in income from continuing operations should be easier to understand and analyze. Disclosure of operating income may assist in comparing different companies and assessing operating efficiencies. The Coca-Cola Company shows an additional intermediate component of income gross profit. PepsiCo does not report this information on its income statement. (b) The gross profit, operating profit, and net income for these two companies are as follows: PepsiCo Sales....................................... Cost of sales........................... Gross profit............................ Operating profit..................... Net income............................. Coca-Cola 2007 $39,474 18,038 $21,436 $7,170 $5,658 2007 $28,857 10,406 $18,451 $7,252 $5,981 2006 $35,137 15,762 $19,375 $6,502 $5,642 2006 $24,088 8,164 $15,924 $6,308 $5,080 2005 $32,562 14,176 $18,386 $5,984 $4,078 2005 $23,104 8,195 $14,909 $6,085 $4,872 % Change 21.23% 27.24% 16.59% 19.82% 38.74% % Change 24.90% 26.98% 23.76% 19.18% 22.76% Sales....................................... Cost of sales........................... Gross profit............................ Operating income.................. Net income............................. 29 As shown in the table on the prior page, the two companies report similar net incomes in 2007 and significant growth in income from 2005 to 2007. However, while Coca-Cola reports better growth in sales and gross profits, PepsiCo reported stronger growth in net income. Both companies are doing well. (c) Coca-Cola has reported gains on the equity transactions related to bottling operations. PepsiCo reported gains on its equity investments. PepsiCo provided the following disclosure for Items Affecting Comparability: Items Affecting Comparability The year-over-year comparisons of our financial results are affected by the following items: Operating profit 2007 06 Restructuring and impairment charges (67) Net Income Restructuring and impairment charges Tax benefits PepsiCo share of PBG tax settlement 18 $(102) 20 $ $ (70) $ 129 $ (43) $602 $ For the items affecting our 2005 results, see Notes 3 and 5, as well as our 2006 Annual Report. Restructuring and Impairment Charges In 2007, we incurred a charge of $102 million in conjunction with restructuring actions primarily to close certain plants and rationalize other production lines across FLNA, PBNA and PI. In 2006, we incurred a charge of $67 million in conjunction with consolidating the manufacturing network at FLNA by closing two plants in the U.S., and rationalizing other assets, to increase manufacturing productivity and supply chain efficiencies. Tax Benefits In 2007, we recognized $129 million of non-cash tax benefits related to the favorable resolution of certain foreign tax matters. 30 In 2006, we recognized non-cash tax benefits of $602 million, substantially all of which related to the Internal Revenue Services (IRS) examination of our consolidated tax returns for the years 1998 through 2002. PepsiCo Share of PBG Tax Settlement In 2006, the IRS concluded its examination of PBGs consolidated income tax return for the years 1999 through 2000 (PBGs Tax Settlement). Consequently, a non-cash benefit of $21 million was included in bottling equity income as part of recording our share of PBGs financial results. These items are significant for PepsiCo because they have contributed to bottom line net income in prior years but there is uncertainty about whether these items will recur in the future. In contrast Coca-Cola has fewer and less significant non-recurring items. 31 Chapter 18 BE18- 1 Aamodt Music sold CDs to retailers and recorded sales revenue of $ 700,000. During 2010, retailers returned CDs to Aamodt and were granted credit of $ 78,000. Past experience indicates that the normal return rate is 15%. Prepare Aamodts entries to record ( a) the $ 78,000 of returns and ( b) estimated returns at December 31, 2010. E18- 4 ( Recognition of Profit on Long- Term Contracts) During 2010 Nilsen Company started a construction job with a contract price of $ 1,600,000. The job was completed in 2012. The following information is available. Instructions ( a) Compute the amount of gross profit to be recognized each year assuming the percentage- of-completion method is used. ( b) Prepare all necessary journal entries for 2011. ( c) Compute the amount of gross profit to be recognized each year assuming the completed- contract method is used. E18- 16 ( Installment- Sales Method and Cost- Recovery Method) On January 1, 2010, Wetzel Company sold property for $ 250,000. The note will be collected as follows: $ 120,000 in 2010, $ 90,000 in 2011, and $ 40,000 in 2012. The property had cost Wetzel $ 150,000 when it was purchased in 2008. Instructions ( a) Compute the amount of gross profit realized each year, assuming Wetzel uses the cost- recovery method. ( b) Compute the amount of gross profit realized each year, assuming Wetzel uses the installment- sales method. Comparative Analysis Case The Coca- Cola Company and PepsiCo, Inc. Instructions Go to books companion website and use information found there to answer the following questions related to The Coca- Cola Company and PepsiCo, Inc. ( a) What were Coca- Colas and PepsiCos net revenues ( sales) for the year 2007? Which company increased its revenues more ( dollars and percentage) from 2006 to 2007? ( b) Are the revenue recognition policies of Coca- Cola and PepsiCo similar? Explain. ( c) In which foreign countries ( geographic areas) did Coca- Cola ( see Note 21) and PepsiCo experience significant revenues in 2007? Compare the amounts of foreign revenues to U. S. revenues for both Coca- Cola and PepsiCo. 32 SOLUTIONS BRIEF EXERCISE 18-1 (a) Sales Returns and Allowances................................................ Accounts Receivable...................................................... 78,000 Sales Returns and Allowances................................................ Allowance for Estimated Sales Returns and Allowances............................................ 27,000 [(15% X $700,000) $78,000] 78,000 (b) 27,000 EXERCISE 18-4 (a) Gross profit recognized in: 2010 Contract price Costs: Costs to date Estimated costs to complete Total estimated profit Percentage completed to date Total gross profit recognized Less: Gross profit recognized in previous years Gross profit recognized in current year $400,000 600,000 1,000,000 600,000 40%* 240,000 0 $ 240,000 $1,600,000 $825,000 275,000 1,100,000 500,000 75%** 375,000 240,000 $ 135,000 $ 2011 $1,600,000 $1,070,000 0 1,070,000 530,000 100% 530,000 375,000 155,000 2012 $1,600,000 **$400,000 $1,000,000**$825,000 $1,100,000 (b) Construction in Process ($825,000 $400,000)........................... 425,000 Materials, Cash, Payables, etc. ............................................................... 425,000 Accounts Receivable ($900,000 $300,000)........................................... Billings on Construction in Process...................................... 600,000 600,000 33 Cash ($810,000 $270,000).............................................................. Accounts Receivable............................................................... 540,000 Construction Expenses..................................................................... Construction in Process................................................................... Revenue from Long-Term Contracts................................... 560,000* *$1,600,000 X (75% 40%) (c) Gross profit recognized in: Gross profit *$1,600,000 $1,070,000 EXERCISE 18-16 (a) Computation of gross profit realizedcost-recovery method: Cash Received $120,000 90,000 40,000 Original Cost Recovered $120,000 30,000 0 2010 $0 2011 $0 540,000 425,000 135,000 2012 $530,000* Year Beginning balance 2010 2011 2012 (b) Balance of Unrecovered Cost $150,000 30,000 0 0 Gross Profit Realized $0 60,000 40,000 Computation of gross profit realizedinstallment-sales method: Gross profit rate:($250,000 $150,000) $250,000 = 40% 2010 Gross profit realized: 2011 Gross profit realized: 2012 Gross profit realized: $120,000 X 40% = $48,000 $ 90,000 X 40% = $36,000 $ 40,000 X 40% = $16,000 (a) COMPARATIVE ANALYSIS CASE For the year 2007, Coca-Cola reported net operating revenues of $28.857 billion and PepsiCo reported net revenue of $39.474 billion. Coca-Cola increased its revenues $4,769 million or 19.8% from 2006 to 2007 while PepsiCo increased its revenue $4,337 million or 12.3% from 2006 to 2007. 34 (b) Revenue Recognition Policies Coca-Cola provided the following revenue recognition note: Our Company recognizes revenue when persuasive evidence of an arrangement exists, delivery of products has occurred, the sales price charged is fixed or determinable, and collectibility is reasonably assured. For our Company, this generally means that we recognize revenue when title to our products is transferred to our bottling partners, resellers or other customers. In particular, title usually transfers upon shipment to or receipt at our customers locations, as determined by the specific sales terms of the transactions. Our sales terms do not allow for a right of return except for matters related to any manufacturing defects on our part. In addition, our customers can earn certain incentives, which are included in deductions from revenue, a component of net operating revenues in the consolidated statements of income. These incentives include, but are not limited to, cash discounts, funds for promotional and marketing activities, volume-based incentive programs and support for infrastructure programs (refer to the heading Other Assets). The aggregate deductions from revenue recorded by the Company in relation to these programs, including amortization expense on infrastructure initiatives, was approximately $4.1 billion, $3.8 billion and $3.7 billion for the years ended December 31, 2007, 2006 and 2005, respectively. PepsiCos Revenue Recognition note is as follows: We recognize revenue upon shipment or delivery to our customers in accordance with written sales terms that do not allow for a right of return. However, our policy for direct-store-delivery (DSD) and chilled products is to remove and replace damaged and out-of-date products from store shelves to ensure that our consumers receive the product quality and freshness that they expect. Similarly, our policy for warehouse distributed products is to replace damaged and outof-date products. Based on our historical experience with this practice, we have reserved for anticipated damaged and out-of-date products. The policies are similar but Coca-Cola does not discuss it policies with respect to returns on direct store deliveries. This is likely due to the companys extensive equity bottling investees. That is, the direct store deliveries are made by the bottlers, not by Coca-Cola. (c) In 2007, Coca Cola experienced significant amounts of revenue in Africa, $1,237 million; Eurasia, $970 million; European Union, $4,145 million; Latin 35 America, $3,069 million and Pacific $3,997 million. In 2007, PepsiCo reported net revenues in Mexico, $3,498 million; United Kingdom, $1,987; Canada, $1,961 million; all other countries, $10,050. In 2007, Coca-Colas U.S. (North America) revenues were $7,761 million compared with $21,096 million of foreign revenues, while PepsiCos U.S. revenues were $21,978 million compared with $17,496 ($39,474 $21,978) million of foreign revenues. 36 Chapter 5 BE5- 11 Stowe Companys December 31, 2010, trial balance includes the following accounts: Investment in Common Stock $ 70,000; Retained Earnings $ 114,000; Trademarks $ 31,000; Preferred Stock $ 152,000; Common Stock $ 55,000; Deferred Income Taxes $ 88,000; Additional Paid- in Capital $ 174,000. Prepare the stockholders equity section of the balance sheet. E5- 16 ( Preparation of a Statement of Cash Flows) A comparative balance sheet for Orozco Corporation is presented below. Additional information: 1. Net income for 2010 was $ 105,000. 2. Cash dividends of $ 40,000 were declared and paid. 3. Bonds payable amounting to $ 50,000 were retired through issuance of common stock. Instructions ( a) Prepare a statement of cash flows for 2010 for Orozco Corporation. ( b) Determine Orozco Corporations current cash debt coverage ratio, cash debt coverage ratio, and free cash flow. Comment on its liquidity and financial flexibility. Comparative Analysis Case The Coca- Cola Company and PepsiCo, Inc. Instructions Go to the books companion website and use information found there to answer the following questions related to The Coca- Cola Company and PepsiCo, Inc. ( a) What format( s) did these companies use to present their balance sheets? ( b) How much working capital did each of these companies have at the end of 2007? Speculate as to their rationale for the amount of working capital they maintain. ( c) What is the most significant difference in the asset structure of the two companies? What causes this difference? ( d) What are the companies annual and 5- year ( 2003 2007) growth rates in total assets and long- term debt? ( e) What were these two companies trends in net cash provided by operating activities over the period 2005 to 2007? ( f) Compute both companies ( 1) current cash debt coverage ratio, ( 2) cash debt coverage ratio, and ( 3) free cash flow. What do these ratios indicate about the financial condition of the two companies? 37 SOLUTIONS BRIEF EXERCISE 5-11 Stockholders equity Preferred stock........................................................................... Common stock........................................................................... Additional paid-in capital.......................................................... Retained earnings....................................................................... Total stockholders equity.................................................... BRIEF EXERCISE 5-12 Cash Flow Statement Operating Activities Net income................................................................................... Depreciation expense................................................................... Increase in accounts receivable................................................... Increase in accounts payable....................................................... Net cash provided by operating activities.................................. Investing Activities Purchase of equipment................................................................. Financing Activities Issue notes payable...................................................................... Dividends..................................................................................... Net cash flow from financing activities................................. Net change in cash ($41,000 $8,000 + $15,000)................................. Free Cash Flow = $41,000 (Net cash provided by operating activities) $8,000 (Purchase of equipment) $5,000 (Dividends) = $28,000. EXERCISE 5-3 1. 2. 3. 4. 5 6. 7. 8. 9. a. b. f. a. f. h. i. d. a. 10. 11. 12. 13. 14. 15. 16. 17. 18. f. a. f. a. or e. (preferably a.) c. and N. f. X. f. c. 38 $40,000 4,000 (10,000) 7,000 41,000 $152,000 55,000 174,000 114,000 $495,000 (8,000) 20,000 (5,000) 15,000 $48,000 EXERCISE 5-16 (a) OROZCO CORPORATION Statement of Cash Flows For the Year Ended December 31, 2010 $105,000 Cash flows from operating activities Net income...................................................................................... Adjustments to reconcile net income to net cash provided by operating activities: Depreciation expense................................................................ Increase in accounts receivable................................................ Decrease in inventory............................................................... Decrease in accounts payable................................................... Net cash provided by operating activities....................................... Cash flows from investing activities Sale of land..................................................................................... Purchase of equipment........... (70,000) Net cash used by investing activities.............................................. Cash flows from financing activities Payment of cash dividends............................................................. Net increase in cash.............................................................................. Cash at beginning of year..................................................................... Cash at end of year............................................................................... Noncash investing and financing activities Issued common stock to retire $50,000 of bonds outstanding (b) Current cash debt coverage ratio = = Net cash provided by operating activities Average current liabilities $112,000 = ($34,000 + $47,000)/2 = 2.77 to 1 $27,000 (16,000) 9,000 (13,000) 39,000 7,000 112,000 (31,000) (40,000) 41,000 22,000 $ 63,000 Cash debt coverage ratio = = = Net cash provided by operating activities Average total liabilities $112,000 $184,000 + $247,000 2 39 = 0.52 to 1 Free Cash Flow Analysis Net cash provided by operating activities......................................................... Less: Purchase of Dividends............................................................................................... equipment........................................................................... Free cash flow................................................................................................... Orozco has acceptable liquidity. Its financial flexibility is good. It might be noted that it substantially reduced its long-term debt in 2010 which will help its financial flexibility. COMPARATIVE ANALYSIS CASE (a) (b) Both the Coca-Cola Company and PepsiCo, Inc. use the report form. The Coca-Cola Company had a negative working capital of $1,120 million ($12,105 million $13,225 million): PepsiCo, Inc. has working capital of $2,398 million ($10,151 million $7,753 million). The Coca-Cola Company indicates in its management discussion and analysis section that its global presence and strong capital position afford it easy access to key financial markets around the world, enabling it to raise funds with a low effective cost. This posture, coupled with active management of its short-term and long-term debt, results in a lower overall cost of borrowing. As a result, its debt management policies, in conjunction with its share repurchase program and investment activity, can result in current liabilities exceeding current assets. PepsiCo has a similar strategy (see discussion in Liquidity and Capital Resources.) The most significant difference relates to intangible assets. The Coca-Cola Company has Trademarks, Goodwill, and Other Intangible Assets of $12,219 million (28% of assets); PepsiCo, Inc. has Intangible Assets, net of amortization of $7,213 million (or 21% of assets). PepsiCo carries higher levels of property, plant, and equipment (32.4% of assets), while Coca-Colas property, plant, and equipment is just 19.6% of assets. Coca-Cola has higher investments in unconsolidated subsidiaries (16.8%* > 12.6% of assets). *($7,777 $488) $43,269 $112,000 (70,000) (40,000) $ 2,000 (c) 40 (d) Total assets The Coca-Cola Company PepsiCo, Inc. Long-term debt The Coca-Cola Company PepsiCo, Inc. (e) 27.25% 28.1% 30.2% 146.9% Annual 13.6% 8.5% Five-Year 57.9% 36.7% The Coca-Cola Company has increased net cash provided by operating activities from 2005 to 2007 by $727 million or 11.3%. PepsiCo, Inc. has increased net cash provided by operating activities by $1,082 million or 18.5%. Both companies have favorable trends in the generation of internal funds from operations. The Coca-Cola Company Current Cash Debt Ratio $13,225 + $8,890 $7,150 2 = 0.65:1 (f) Cash Debt Coverage Ratio $21,525 + $13,043 $7,150 ($ millions) Free cash flow Net cash provided by operating activities.............................................. Less: property, plant, equipment........................................................... Dividends............................................................................................... Free cash flow........................................................................................ 41 $7,150 1,648 3,149 $2,353 2 = 0.41:1 Coca-Cola Companys free cash flow is $2,353. Note that Coca-Cola is also using cash to repurchase shares ($1,838 million in 2007). PepsiCo, Inc. Current Cash Debt Ratio $7,753 + $6,860 $6,934 2 = 0.95:1 Cash Debt Coverage Ratio $17,394 + $14,562 $6,934 Free cash flow Net cash provided by operating activities............................................ Less: Capital spending........................................ Dividends.............................................. Free cash flow...................................................... $2,430 2,204 4,634 $2,300 $6,934 2 = 0.43:1 PepsiCo also is using significant cash balances to repurchase shares ($4,312 million in 2007). Both companies have strong liquidity and financial flexibility. 42 Chapter 7 E7- 1 ( Determining Cash Balance) The controller for Weinstein Co. is attempting to determine the amount of cash and cash equivalents to be reported on its December 31, 2010, balance sheet. The following information is provided. 1. Commercial savings account of $ 600,000 and a commercial checking account balance of $ 800,000 are held at First National Bank of Olathe. 2. Money market fund account held at Volonte Co. ( a mutual fund organization) permits Weinstein to write checks on this balance, $ 5,000,000. 3. Travel advances of $ 180,000 for executive travel for the first quarter of next year ( employee to reimburse through salary reduction). 4. A separate cash fund in the amount of $ 1,500,000 is restricted for the retirement of long- term debt. 5. Petty cash fund of $ 1,000. 6. An I. O. U. from Marianne Koch, a company customer, in the amount of $ 150,000. 7. A bank overdraft of $ 110,000 has occurred at one of the banks the company uses to deposit its cash receipts. At the present time, the company has no deposits at this bank. 8. The company has two certificates of deposit, each totaling $ 500,000. These CDs have a maturity of 120 days. 9. Weinstein has received a check that is dated January 12, 2011, in the amount of $ 125,000. 10. Weinstein has agreed to maintain a cash balance of $ 500,000 at all times at First National Bank of Olathe to ensure future credit availability. 11. Weinstein has purchased $ 2,100,000 of commercial paper of Sergio Leone Co. which is due in 60 days. 12. Currency and coin on hand amounted to $ 7,700. Instructions ( a) Compute the amount of cash to be reported on Weinstein Co. s balance sheet at December 31, 2010. ( b) Indicate the proper reporting for items that are not reported as cash on the December 31, 2010, balance sheet. E7- 4 ( Determine Ending Accounts Receivable) Your accounts receivable clerk, Mary Herman, to whom you pay a salary of $ 1,500 per month, has just purchased a new Buick. You decided to test the accuracy of the accounts receivable balance of $ 117,000 as shown in the ledger. The following information is available for your first year in business. (1) Collection from customers $198,000 (2) Merchandise purchased 320,000 (3) Ending merchandise inventory 70,000 (4) Goods are marked to sell at 40% above cost Instructions Compute an estimate of the ending balance of accounts receivable from customers that should appear in the ledger and any apparent shortages. Assume that all sales are made on account. 43 E7- 18 ( Note Transactions at Unrealistic Interest Rates) On July 1, 2010, Rentoul Inc. made two sales. 1. It sold land having a fair market value of $ 900,000 in exchange for a 4- year zerointerest- bearing promissory note in the face amount of $ 1,416,163. The land is carried on Rentouls books at a cost of $ 590,000. 2. It rendered services in exchange for a 3%, 8- year promissory note having a face value of $ 400,000 ( interest payable annually). Rentoul Inc. recently had to pay 8% interest for money that it borrowed from British National Bank. The customers in these two transactions have credit ratings that require them to borrow money at 12% interest. Instructions Record the two journal entries that should be recorded by Rentoul Inc. for the sales transactions above that took place on July 1, 2010. P7-2 (Bad-Debt Reporting) Presented below are a series of unrelated situations. 1. Halen Companys unadjusted trial balance at December 31, 2010, included the following accounts. Debit Credit Allowance for doubtful accounts $4,000 $1,200, Net sales 000 Halen Company estimates its bad debt expense to be 1.5% of net sales. Determine its bad debt expense for 2010. 2. An analysis and aging of Stuart Corp. accounts receivable at December 31, 2010, disclosed the following. Amounts estimated to be uncollectible $180,000 Accounts receivable 1,750,000 Allowance for doubtful accounts (per books) 125,000 What is the net realizable value of Stuarts receivable at December 31, 2010? 3. Shore Co. provides for doubtful accounts based on 3% of credit sales. The following data are available for 2010. $2,400,00 Credit sales during 2010 0 allowance for doubtful accounts 1/1/10 17,000 collection of accounts written off in prior years (customers credit was reestablished) 8,000 customer accounts written off as uncollectible during 2010 30,000 What is the balance in the Allowance for Doubtful accounts at December 31, 2010? 4. At the end of its first year of operations, December 31, 2010, Darden Inc. reported the following information. Accounts receivable, net of allowance for doubtful accounts $950,000 customer accounts written off as uncollectible during 2010 24,000 44 Bad debt expense for 2010 84,000 What should be the balance in accounts receivable at December 31, 2010, before subtracting the allowance for doubtful accounts? 5. The following accounts were taken from Bullock Incs trial balance at December 31, 2010. Credi Debit t $750, Net credit sales 000 Allowance for doubtful accounts $14,000 Accounts receivable 310,000 If doubtful accounts are 3% of accounts receivable, determine the bad debt expense to be reported for 2010. Instructions Answer the question relating to each of the five independent situations as requested. Comparative Analysis Case The Coca- Cola Company and PepsiCo, Inc. Instructions Go to the books companion website and use the information found there to answer the following questions related to The Coca- Cola Company and PepsiCo, Inc. ( a) What were the cash and cash equivalents reported by Coca- Cola and PepsiCo at the end of 2007? What does each company classify as cash equivalents? ( b) What were the accounts receivable ( net) for Coca- Cola and PepsiCo at the end of 2007? Which company reports the greater allowance for doubtful accounts receivable ( amount and percentage of gross receivable) at the end of 2007? ( c) Assuming that all net operating revenues ( Coca- Cola) and all net sales ( PepsiCo) were net credit sales, compute the receivables turnover ratio for 2007 for Coca- Cola and PepsiCo; also compute the days outstanding for receivables. What is your evaluation of the difference? SOLUTIONS EXERCISE 7-1 (a) Cash includes the following: 1. Commercial savings account First National Bank of Olathe.............................................................. 1. Commercial checking account First National Bank of Olathe.............................................................. 2. Money market fundVolonte................................................................ 5. Petty cash................................................................................................. 11. Commercial Paper (cash equivalent)....................................................... 12. Currency and coin on hand...................................................................... 45 $ 600,000 800,000 5,000,000 1,000 2,100,000 7,700 Cash reported on December 31, 2010, balance sheet.......................................... (b) Other items classified as follows: 3. Travel advances (reimbursed by employee)* should be reported as receivableemployee in the amount of $180,000. 4. Cash restricted in the amount of $1,500,000 for the retirement of long-term debt should be reported as a noncurrent asset identified as Cash restricted for retirement of long-term debt. 6. An IOU from Marianne Koch should be reported as a receivable in the amount of $150,000. 7. The bank overdraft of $110,000 should be reported as a current liability.** 8. Certificates of deposits of $500,000 each should be classified as temporary investments. 9. Postdated check of $125,000 should be reported as an accounts receivable. 10. The compensating balance requirement does not affect the balance in cash. A note disclosure indicating the arrangement and the amounts involved should be described in the notes. *If not reimbursed, charge to prepaid expense. **If cash is present in another account in the same bank on which the overdraft occurred, offsetting is required. EXERCISE 7-4 Computation of cost of goods sold: Merchandise purchased................................................................. Less: Ending inventory................................................................. Cost of goods sold..................................................................................... Selling price = 1.4 (Cost of good sold) = 1.4 ($250,000) = $350,000 Sales on account....................................... Less: Collections..................................... Uncollected balance................................. Balance per ledger.................................... Apparent shortage.................................... EXERCISE 7-18 1. 7/1/10 Notes Receivable........................................................ Discount on Notes Receivable......................... Land................................................................. Gain on Sale of Land 1,416,163 $350,000 198,000 152,000 117,000 $ 35,000 Enough for a new car $8,508,700 $320,000 70,000 $250,000 516,163 590,000 46 ($900,000 $590,000).................................. Computation of the discount $1,416,163 Face value of note .63552 Present value of 1 for 4 periods at 12% $ 900,000 Present value of note 1,416,163 Face value of note $ 516,163 Discount on notes receivable 2. 7/1/10 Notes Receivable...................................................... Discount on Notes Receivable....................... Service Revenue............................................. 400,000.00 310,000 178,836.32 221,163.68 $400,000.00 $161,552.00 59,611.68 221,163.68 $178,836.32 Computation of the present value of the note: Maturity value..................................................................... Present value of $400,000 due in 8 years at 12%$400,000 X .40388.............................. Present value of $12,000 payable annually for 8 years at 12% annually$12,000 X 4.96764................................ Present value of the note..................................................... Discount on notes receivable.............................................. PROBLEM 7-2 1. Net sales.............................................................................................................. Percentage........................................................................................................... Bad debt expense................................................................................................. Accounts receivable............................................................................................ Amounts estimated to be uncollectible............................................................... Net realizable value............................................................................................. Allowance for doubtful accounts 1/1/10............................................................. Establishment of accounts written off in prior years........................................... Customer accounts written off in 2010............................................................... Bad debt expense for 2010 ($2,400,000 X 3%).................................................. Allowance for doubtful accounts 12/31/10......................................................... Bad debt expense for 2010.................................................................................. Customer accounts written off as uncollectible during 2010..................................................................................................... 47 $1,200,000 1 1/2% $ 18,000 $1,750,000 (180,000) $1,570,000 $ 17,000 8,000 (30,000) 72,000 $ 67,000 $ 84,000 (24,000) 2. 3. 4. Allowance for doubtful accounts balance 12/31/10............................................ Accounts receivable, net of allowance for doubtful Accounts...................................................................................... Allowance for doubtful accounts balance 12/31/10............................................ Accounts receivable, before deducting allowance for doubtful accounts..................................................................... 5. Accounts receivable............................................................................................ Percentage........................................................................................................... Bad debt expense, before adjustment.................................................................. Allowance for doubtful accounts (debit balance)............................................... Bad debt expense, as adjusted............................................................................. $ 60,000 $ 950,000 60,000 $1,010,000 $ 310,000 3% 9,300 14,000 $ 23,300 COMPARATIVE ANALYSIS CASE (a) Cash and cash equivalents: Coca-Cola, 12/31/07 $4,093,000,000 PepsiCo, 12/29/07 $910,000,000 Coca-Cola classifies cash equivalents as marketable securities that are highly liquid and have maturities of three months or less at the date of purchase. PepsiCo classifies cash equivalents as funds temporarily invested (with maturities three months or less). (b) Accounts receivable (net): Coca-Cola, 12/31/07 $3,317,000,000 Allowance for doubtful accounts receivable: Coca-Cola, 12/31/07 Balance, $56,000,000 Percent of receivables, 1.7% PepsiCo, 12/29/07 Balance, $69,000,000 Percent of receivables, 1.6% 48 PepsiCo, 12/29/07 $4,389,000,000 (c) Receivables turnover ratio and days outstanding for receivables: Coca-Cola $28,857 $3,317 + $2,587 2 365 9.8 = 37.2 days days Coca-Colas turnover ratio is slightly higher, resulting in fewer days in receivables. It is likely that these companies use similar receivables management practices. = 9.8 times $39,474 $4,389 + $3,725 2 365 9.7 = 37.6 PepsiCo = 9.7 times 49 Chapter 8 BE8- 1 Included in the December 31 trial balance of Rivera Company are the following assets. Cash $ 190,000 Work in process $ 200,000 Equipment ( net) 1,100,000 Receivables ( net) 400,000 Prepaid insurance 41,000 Patents 110,000 Raw materials 335,000 Finished goods 170,000 Prepare the current assets section of the December 31 balance sheet. BE8- 3 Stallman Company took a physical inventory on December 31 and determined that goods costing $ 200,000 were on hand. Not included in the physical count were $ 25,000 of goods purchased from Pelzer Corporation, f. o. b. shipping point, and $ 22,000 of goods sold to Alvarez Company for $ 30,000, f. o. b. destination. Both the Pelzer purchase and the Alvarez sale were in transit at year- end. What amount should Stallman report as its December 31 inventory? BE8- 5 Amsterdam Company uses a periodic inventory system. For April, when the company sold 600 units, the following information is available. Units Unit Cost Total Cost April 1 inventory 250 $ 10 $ 2,500 April 15 purchase 400 12 4,800 April 23 purchase 350 13 4,550 1,000 $ 11,850 Compute the April 30 inventory and the April cost of goods sold using the average cost method. E8- 2 ( Inventoriable Costs) In your audit of Garza Company, you find that a physical inventory on December 31, 2010, showed merchandise with a cost of $ 441,000 was on hand at that date. You also discover the following items were all excluded from the $ 441,000. 1. Merchandise of $ 61,000 which is held by Garza on consignment. The consignor is the Bontemps Company. 2. Merchandise costing $ 33,000 which was shipped by Garza f. o. b. destination to a customer on December 31, 2010. The customer was expected to receive the merchandise on January 6, 2011. 3. Merchandise costing $ 46,000 which was shipped by Garza f. o. b. shipping point to a customer on December 29, 2010. The customer was scheduled to receive the merchandise on January 2, 2011. 4. Merchandise costing $ 73,000 shipped by a vendor f. o. b. destination on December 30, 2010, and received by Garza on January 4, 2011. 5. Merchandise costing $ 51,000 shipped by a vendor f. o. b. shipping point on December 31, 2010, and received by Garza on January 5, 2011. Instructions Based on the above information, calculate the amount that should appear on Garzas balance sheet at December 31,2010, for inventory. E8- 8 ( Purchases Recorded, Gross Method) Wizard Industries purchased $ 12,000 of merchandise on February 1, 2010, subject to a trade discount of 10% and with credit terms of 3/ 15, n/ 60. It returned $ 3,000 ( gross price before trade or cash discount) on February 4. The invoice was paid on February 13. Instructions 50 ( a) Assuming that Wizard uses the perpetual method for recording merchandise transactions, record the purchase, return, and payment using the gross method. ( b) Assuming that Wizard uses the periodic method for recording merchandise transactions, record the purchase, return, and payment using the gross method. ( c) At what amount would the purchase on February 1 be recorded if the net method were used? E8- 14 ( FIFO, LIFO, and Average Cost Determination) LoBianco Companys record of transactions for the month of April was as follows. Instructions ( a) Assuming that periodic inventory records are kept, compute the inventory at April 30 using ( 1) LIFO and ( 2) average cost. ( b) Assuming that perpetual inventory records are kept in both units and dollars, determine the inventory at April 30 using ( 1) FIFO and ( 2) LIFO. ( c) Compute cost of goods sold assuming periodic inventory procedures and inventory priced at FIFO. ( d) In an inflationary period, which inventory method FIFO, LIFO, average cost will show the highest net income? E8- 25 ( Dollar- Value LIFO) Presented below is information related to Martin Company. Instructions Compute the ending inventory for Martin Company for 2007 through 2012 using the dollar- value LIFO method. Case 1 T J International T J International was founded in 1969 as Trus Joist International. The firm, a manufacturer of specialty building products, has its headquarters in Boise, Idaho. The company, through its partnership in the Trus Joist MacMillan joint venture, develops and manufactures engineered lumber. This product is a high-quality substitute for structural lumber, and uses lower- grade wood and materials formerly considered waste. The company also is majority owner of the Outlook Window Partnership, which is a consortium of three wood and vinyl window manufacturers. Following is T J Internationals adapted income statement and information concerning inventories from its annual report. Instructions ( a) How much would income before taxes have been if FIFO costing had been used to value all inventories? ( b) If the income tax rate is 46.6%, what would income tax have been if FIFO costing had been used to value all inventories? In your opinion, is this difference in net income between the two methods material? Explain. 51 ( c) Does the use of a different costing system for different types of inventory mean that there is a different physical flow of goods among the different types of inventory? Explain. SOLUTIONS BRIEF EXERCISE 8-1 RIVERA COMPANY Balance Sheet (Partial) December 31 Current assets Cash Receivables (net)..................................................................... Inventories Finished goods.............................................................. Work in process............................................................ Raw materials............................................................... Prepaid insurance.................................................................... Total current assets....................................................... BRIEF EXERCISE 8-3 December 31 inventory per physical count............................................................ Goods-in-transit purchased FOB shipping point.................................................... Goods-in-transit sold FOB destination................................................................... December 31 inventory.............................................................................. BRIEF EXERCISE 8-5 Weighted average cost per unit Ending inventory 400 X $11.85 = Cost of goods available for sale Deduct ending inventory Cost of goods sold (600 X $11.85) EXERCISE 8-2 Inventory per physical count.................................................................................. Goods in transit to customer, f.o.b. destination...................................................... Goods in transit from vendor, f.o.b. shipping point............................................... Inventory to be reported on balance sheet.............................................................. The consigned goods of $61,000 are not owned by Garza and were properly excluded. 52 $441,000 + 33,000 + 51,000 $525,000 $11,850 1,000 = $11.85 $4,740 $11,850 4,740 $ 7,110 $200,000 25,000 22,000 $247,000 $ 190,000 400,000 $170,000 200,000 335,000 705,000 41,000 $1,336,000 The goods in transit to a customer of $46,000, shipped f.o.b. shipping point, are properly excluded from the inventory because the title to the goods passed when they left the seller (Oliva) and therefore a sale and related cost of goods sold should be recorded in 2010. The goods in transit from a vendor of $73,000, shipped f.o.b. destination, are properly excluded from the inventory because the title to the goods does not pass to Garza until the buyer (Garza) receives them. EXERCISE 8-8 (a) Feb. 1 Feb. 4 Inventory [$12,000 ($12,000 X 10%)]............................. Accounts Payable.................................................... Accounts Payable [$3,000 ($3,000 X 10%)].............................................. Inventory................................................................. Accounts Payable ($10,800 $2,700)................................ Inventory (3% X $8,100)........................................ Cash......................................................................... Purchases [$12,000 ($12,000 X 10%)]............................ Accounts Payable.................................................... Accounts Payable [$3,000 ($3,000 X 10%)].............................................. Purchase Returns and Allowances.......................... Accounts Payable ($10,800 $2,700)................................ Purchase Discounts (3% X $8,100)........................ Cash......................................................................... 10,800 10,800 2,700 2,700 8,100 243 7,857 10,800 10,800 2,700 2,700 8,100 243 7,857 Feb. 13 (b) Feb. 1 Feb. 4 Feb. 13 (c) Purchase price (list).................................................................... Less: Trade discount (10% X $12,000)..................................... Price on which cash discount based........................................... Less: Cash discount (3% X $10,800)........................................ Net price..................................................................................... $12,000 1,200 10,800 324 $10,476 EXERCISE 8-14 (a) 1. LIFO 600 @ $6.00 = 200 @ $6.08 = $3,600 1,216 $4,816 2. Average cost 53 Total cost Total units = $33,655* 5,300 = $6.35 average cost per unit 800 @ $6.35 = $5,080 *Units 600 1,500 800 1,200 700 500 5,300 (b) 1. FIFO Price $6.00 $6.08 $6.40 $6.50 $6.60 $6.79 Total Cost $ 3,600 9,120 5,120 7,800 4,620 3,395 $33,655 @ @ @ @ @ @ = = = = = = 500 @ $6.79 = 300 @ $6.60 = $3,395 1,980 $5,375 $ 600 1,216 3,395 $5,211 $33,655 5,375 $28,280 2. LIFO 100 @ $6.00 = 200 @ $6.08 = 500 @ $6.79 = (c) Total merchandise available for sale Less inventory (FIFO) Cost of goods sold FIFO. (d) EXERCISE 8-25 Current $ Price Index 1.00 1.05 1.20 1.30 1.40 1.45 2011 $ 80,000 27,300 Base Year $ $ 80,000 106,000 90,000 94,000 105,000 122,000 $80,000 @ 1.00 = 10,000 @ 1.05 = 4,000 @ 1.30 = 11,000 @ 1.40 = 54 Change from Prior Year +$26,000 (16,000) +4,000 +11,000 +17,000 $ 80,000 10,500 5,200 15,400 2007 $ 80,000 2008 111,300 2009 108,000 2010 122,200 2011 147,000 2012 176,900 Ending InventoryDollar-value LIFO: 2007 2008 $80,000 $80,000 @ 1.00 = 26,000 @ 1.05 = $107,300 2009 $80,000 @ 1.00 = 10,000 @ 1.05 = $ 80,000 10,500 $ 90,500 $ 80,000 10,500 5,200 $ 95,700 2012 $80,000 @ 1.00 = 10,000 @ 1.05 = 4,000 @ 1.30 = 11,000 @ 1.40 = 17,000 @ 1.45 = $111,100 $ 80,000 10,500 5,200 15,400 24,650 $135,750 2010 $80,000 @ 1.00 = 10,000 @ 1.05 = 4,000 @ 1.30 = FINANCIAL STATEMENT ANALYSIS CASE 1 (a) Sales.......................................... Cost of goods sold*................... Gross profit............................... Selling and administrative expense...................................... Income from operations............ Other expense............................ Income before income tax......... *Cost of goods sold (per annual report)......................................... LIFO effect ($5,263,000 $3,993,000)............................... Cost of goods sold (per LIFO). . (b) $618,876,000 474,206,000 144,670,000 102,112,000 42,558,000 (24,712,000) $ 17,846,000 $475,476,000 (1,270,000) $474,206,000 $17,846,000 income before taxes X 46.6% tax = $8,316,236 tax; $17,846,000 $8,316,236 tax = $9,529,764 net income as compared to $8,848,000 net income under LIFO. This is $681,764 or about 8% different. An 8% change in net income is probably material, but this would depend on the industry and perhaps on the companys own past averages. No, the use of different costing methods does not necessarily mean that there is a difference in the physical flow of goods. As explained in the text, the actual physical flow need have no relationship to the cost flow assumption. The management of T J International has determined that LIFO is appropriate only for 55 (c) a subset of its products, and these reasons have to do with economic characteristics, rather than the physical flow of the goods. 56 Chapter 9 BE9- 1 Presented below is information related to Rembrandt Inc. s inventory. Determine the following: ( a) the two limits to market value ( i. e., the ceiling and the floor) that should be used in the lower- of- cost- or- market computation for skis; ( b) the cost amount that should be used in the lower- of- cost- or- market comparison of boots; and ( c) the market amount that should be used to value parkas on the basis of the lowerof- cost- or- market. BE9- 5 Kemper Company signed a long- term noncancelable purchase commitment with a major supplier to purchase raw materials in 2011 at a cost of $ 1,000,000. At December 31, 2010, the raw materials to be purchased have a market value of $ 950,000. Prepare any necessary December 31 entry. E9- 8 ( Relative Sales Value Method) During 2011, Crawford Furniture Company purchases a carload of wicker chairs. The manufacturer sells the chairs to Crawford for a lump sum of $ 60,000, because it is discontinuing manufacturing operations and wishes to dispose of its entire stock. Three types of chairs are included in the carload. The three types and the estimated selling price for each are listed below. During 2011, Crawford sells 200 lounge chairs, 100 armchairs, and 120 straight chairs. Instructions What is the amount of gross profit realized during 2011? What is the amount of inventory of unsold straight chairs on December 31, 2011? E9- 13 ( Gross Profit Method) Zidek Corp. requires an estimate of the cost of goods lost by fire on March 9. Merchandise on hand on January 1 was $ 38,000. Purchases since January 1 were $ 92,000; freight- in, $ 3,400; purchase returns and allowances, $ 2,400. Sales are made at 331/ 3% above cost and totaled $ 120,000 to March 9. Goods costing $ 10,900 were left undamaged by the fire; remaining goods were destroyed. Instructions ( a) Compute the cost of goods destroyed. ( b) Compute the cost of goods destroyed, assuming that the gross profit is 331/ 3% of sales. Comparative Analysis Case The Coca- Cola Company and PepsiCo, Inc. Instructions Go to the books companion website and use information found there to answer the following questions related to The Coca- Cola Company and PepsiCo, Inc. ( a) What is the amount of inventory reported by Coca- Cola at December 31, 2007, and by PepsiCo at December 29, 2007? What percent of total assets is invested in inventory by each company? ( b) What inventory costing methods are used by Coca- Cola and PepsiCo? How does each company value its inventories? 57 ( c) In the notes, what classifications ( description) are used by Coca- Cola and PepsiCo to categorize their inventories? ( d) Compute and compare the inventory turnover ratios and days to sell inventory for Coca- Cola and PepsiCo for 2007. Indicate why there might be a significant difference between the two companies. SOLUTIONS BRIEF EXERCISE 9-1 (a) (b) (c) Ceiling Floor $106.00 $51.00 $193.00 ($212 $19) $161.00 ($212 $19 $32) BRIEF EXERCISE 9-5 Unrealized Holding LossIncome (Purchase Commitments)................................................................................... Estimated Liability on Purchase Commitments........................................................................ 50,000 50,000 EXERCISE 9-8 Cost per Chair $ 5 4 4 8 3 0 58 Cost Alloc ated to Chair s $ 2 1 , 6 0 0 $ 6 0 , 0 0 0 X $ 3 6 , 0 0 0 / $ 1 0 0 , 0 0 0 1 4 , 4 0 0 6 0 , 0 0 0 X $ 2 4 , 0 0 0 / $ 1 0 0 , 0 0 0 2 4 , 0 0 0 6 0 , 0 0 0 X $ 4 0 , 0 0 0 / $ 1 0 0 , 0 0 0 $ 6 0 , 0 0 0 Gross Profit $ $ 7, 3, 2, 12 20 20 40 ,8 0 0 0 00 Total Cost Relat ive Sales Price Sales $ 1 8 , 0 0 0 8 , 0 0 0 $ 63 , 2, 00 00 00 Total Sales Price $3 2 4 $ 6, 4, 0, 1 00 00 00 0 0 0 0 0, 0 0 0 $9 0 8 0 5 0 Cost$10,8 4,80 3,60 of $19,2 Chairs 00 0 0 00 Sold Sales Price per Chain Cost 48 30 per Chair $54 I n v e n ( 8 0 0 59 No. of Chair s 4 0 0 3 0 0 8 0 0 Number 2 of 0 Chairs 0 Sold 1 0 0 1 2 0 t o r y o f s t r a i g h t c h a i r s 1 2 0 ) X $ 3 0 = $ 2 0 , 4 0 0 Chair s L o u n g e c h a i r s A r m c h a i r s S t r a i g h t c h a i r s Chai rs L o u n g e c h a i r s A r m c h a i r s S t r a i g h t c h a i r s EXERCISE 9-13 (a) Merchandise on hand, January 1.............................................. Purchases.................................................................................. Less: Purchase returns and allowances................................... Freight-in.................................................................................. Total merchandise available (at cost)........................... Cost of goods sold*.................................................................. Ending inventory...................................................................... Less: Undamaged goods.......................................................... Estimated fire loss.................................................................... *Gross profit = 33 1/3% 100% + 33 1/3% = 25% of sales. $ 38,000 92,000 (2,400) 3,400 131,000 90,000 41,000 10,900 $ 30,100 Cost of goods sold = 75% of sales of $120,000 = $90,000. (b) Cost of goods sold = 66 2/3% of sales of $120,000 = $80,000 Total merchandise available (at cost).............................................................. [$131,000 [as computed in (a)] $80,000] Less: Undamaged goods................................................................................. Estimated fire loss........................................................................................... 60 $51,000 10,900 $40,100 61 (a) (b) COMPARATIVE ANALYSIS CASE Coca-Cola reported inventories of $2,220 million, which represents 5.1% of total assets. PepsiCo reported inventories of $2,290 million, which represents 6.6% of its total assets. Coca-Cola determines the cost of its inventories on the basis of average cost or first-in, first-out (FIFO) methods; its inventories are valued at the lower-of-cost-or-market. PepsiCo reported that the cost of 14% of its 2007 inventories was computed using the LIFO method. PepsiCos inventories are valued at the lower of cost (computed on the average, FIFO or LIFO method) or market. Coca-Cola classifies and describes its inventories as primarily raw materials and packaging and finished goods. PepsiCo classifies and describes its inventories as (1) raw materials, (2) work-in-process and (3) finished goods. Inventory turnover ratios and days to sell inventory for 2007: Coca-Cola $10,406 $2,220 + $1,641 2 365 5.4 = 68 days = 5.4 times $18,038 $2,290 + $1,926 2 365 8.6 = 42 days PepsiCo = 8.6 times (c) (d) A substantial difference between Coca-Cola and PepsiCo exists regarding the inventory turnover and related days to sell inventory. The primary reason is that PepsiCos cost of goods sold and related inventories involves food operations as well as beverage cost. This situation is not true for Coca-Cola. Food will have a much higher turnover ratio because food must be turned over quickly or else spoilage will become a major problem. 62 Chapter 17 BE17- 2 Use the information from BE17- 1, but assume the bonds are purchased as an available- for- sale security. Prepare Garfields journal entries for ( a) the purchase of the investment, ( b) the receipt of annual interest and discount amortization, and ( c) the yearend fair value adjustment. The bonds have a year-end fair value of $ 75,500. E17- 1 ( Investment Classifications) For the following investments identify whether they are: 1. Trading Securities 2. Available- for- Sale Securities 3. Held- to- Maturity Securities Each case is independent of the other. ( a) A bond that will mature in 4 years was bought 1 month ago when the price dropped. As soon as the value increases, which is expected next month, it will be sold. ( b) 10% of the outstanding stock of Farm- Co was purchased. The company is planning on eventually getting a total of 30% of its outstanding stock. ( c) 10- year bonds were purchased this year. The bonds mature at the first of next year. ( d) Bonds that will mature in 5 years are purchased. The company would like to hold them until they mature, but money has been tight recently and they may need to be sold. ( e) A bond that matures in 10 years was purchased. The company is investing money set aside for an expansion project planned 10 years from now. ( f) Preferred stock was purchased for its constant dividend. The company is planning to hold the preferred stock for a long time. E17- 12 ( Journal Entries for Fair Value and Equity Methods) Presented below are two independent situations. Situation 1 Hatcher Cosmetics acquired 10% of the 200,000 shares of common stock of Ramirez Fashion at a total cost of $ 14 per share on March 18, 2010. On June 30, Ramirez declared and paid a $ 75,000 cash dividend. On December 31, Ramirez reported net income of $ 122,000 for the year. At December 31, the market price of Ramirez Fashion was $ 15 per share. The securities are classified as available- for- sale. Situation 2 Holmes, Inc. obtained significant influence over Nadal Corporation by buying 25% of Nadals 30,000 outstanding shares of common stock at a total cost of $ 9 per share on January 1, 2010. On June 15, Nadal declared and paid a cash dividend of $ 36,000. On December 31, Nadal reported a net income of $ 85,000 for the year. Instructions Prepare all necessary journal entries in 2010 for both situations. E17- 22 ( Derivative Transaction) On January 2, 2010, Jones Company purchases a call option for $ 300 on Merchant common stock. The call option gives Jones the option to buy 1,000 shares of Merchant at a strike price of $ 50 per share. The market price of a Merchant share is $ 50 on January 2, 2010 ( the intrinsic value is therefore $ 0). On March 31, 2010, the market price for Merchant stock is $ 53 per share, and the time value of the option is $ 200. 63 Instructions ( a) Prepare the journal entry to record the purchase of the call option on January 2, 2010. ( b) Prepare the journal entry( ies) to recognize the change in the fair value of the call option as of March 31, 2010. ( c) What was the effect on net income of entering into the derivative transaction for the period January 2 to March 31, 2010? ( Ignore tax effects.) E17- 23 ( Fair Value Hedge) On January 2, 2010, MacCloud Co. issued a 4- year, $ 100,000 note at 6% fixed interest, interest payable semiannually. MacCloud now wants to change the note to a variable- rate note. As a result, on January 2, 2010, MacCloud Co. enters into an interest rate swap where it agrees to receive 6% fixed and pay LIBOR of 5.7% for the first 6 months on $ 100,000. At each 6- month period, the variable rate will be reset. The variable rate is reset to 6.7% on June 30, 2010. Instructions ( a) Compute the net interest expense to be reported for this note and related swap transaction as of June 30, 2010. ( b) Compute the net interest expense to be reported for this note and related swap transaction as of December 31, 2010. E17- 24 ( Cash Flow Hedge) On January 2, 2010, Parton Company issues a 5- year, $ 10,000,000 note at LIBOR, with interest paid annually. The variable rate is reset at the end of each year. The LIBOR rate for the first year is 5.8%. Parton Company decides it prefers fixed- rate financing and wants to lock in a rate of 6%. As a result, Parton enters into an interest rate swap to pay 6% fixed and receive LIBOR based on $ 10 million. The variable rate is reset to 6.6% on January 2, 2011. Instructions ( a) Compute the net interest expense to be reported for this note and related swap transactions as of December 31, 2010. ( b) Compute the net interest expense to be reported for this note and related swap transactions as of December 31, 2011. Comparative Analysis Case The Coca- Cola Company and PepsiCo, Inc. Instructions Go to the books companion website and use information found there to answer the following questions related to The Coca- Cola Company and PepsiCo, Inc. ( a) Based on the information contained in these financial statements, determine each of the following for each company. ( 1) Cash used in ( for) investing activities during 2007 ( from the statement of cash flows). ( 2) Cash used for acquisitions and investments in unconsolidated affiliates ( or principally bottling companies) during 2007. ( 3) Total investment in unconsolidated affiliates ( or investments and other assets) at the end of 2007. 64 ( 4) What conclusions concerning the management of investments can be drawn from these data? ( b) ( 1) Briefly identify from Coca- Colas December 31, 2007, balance sheet the investments it reported as being accounted for under the equity method. ( 2) What is the amount of investments that Coca- Cola reported in its 2007 balance sheet as cost method investments, and what is the nature of these investments? ( c) In its Note number 9 on Financial Instruments, what total amounts did Coca- Cola report at December 31, 2007, as: ( 1) trading securities, ( 2) available- for- sale securities, and ( 3) held- to-maturity securities? SOLUTIONS BRIEF EXERCISE 17-2 (a) Available-for-Sale Securities............................................................... Cash............................................................................................. 74,086 Cash ($80,000 X .09)............................................................................ Available-for-Sale Securities............................................................... Interest Revenue ($74,086 X .11).............................................. 8,149 Securities Fair Value Adjustment (AFS)........................................... Unrealized Holding Gain or LossEquity [($74,086 + $949) $75,500].................................................. 465 74,086 (b) 7,200 949 (c) 465 EXERCISE 17-1 (a) 1 (b) 2 (c) 1 (d) 2 (e) 3 (f) 2 EXERCISE 17-12 Situation 1: Journal entries by Hatcher Cosmetics: To record purchase of 20,000 shares of Ramirez Fashion at a cost of $14 per share: March 18, 2010 Available-for-Sale Securities..................................................................... Cash................................................................................................... 280,000 280,000 65 To record the dividend revenue from Ramirez Fashion: June 30, 2010 Cash .................................................................................................. 7,500 Dividend Revenue ($75,000 X 10%).................................................. 7,500 To record the investment at fair value: December 31, 2010 Securities Fair Value Adjustment (Available-for-Sale).................................................................................... Unrealized Holding Gain or LossEquity........................................ 20,000* *($15 $14) X 20,000 shares = $20,000 Situation 2: Journal entries by Holmes, Inc.: To record the purchase of 25% of Nadal Corporations common stock: January 1, 2010 Investment in Nadal Corp. Stock................................................................. Cash [(30,000 X 25%) X $9]................................................................ 67,500 67,500 20,000 Since Holmes, Inc. obtained significant influence over Nadal Corp., Holmes, Inc. now employs the equity method of accounting. To record the receipt of cash dividends from Nadal Corporation: June 15, 2010 Cash ($36,000 X 25%)................................................................................... Investment in Nadal Corp. Stock ....................................................... 9,000 To record Holmess share (25%) of Nadal Corporations net income of $85,000: December 31, 2010 Investment in Nadal Corp. Stock (25% X $85,000)......................................................................................... 21,250 66 9,000 Revenue from Investment ................................................................... 21,250 *EXERCISE 17-22 (a) Call Option............................................................................................. Cash.............................................................................................. 300 Unrealized Holding Gain or LossIncome........................................ Call Option ($300 $200)........................................................... 100 Call Option............................................................................................. Unrealized Holding Gain or Loss Income (1,000 X $3).................................................................. 3,000 (c) Unrealized Holding Gain: $2,900 ($3,000 $100) 300 (b) 100 3,000 *EXERCISE 17-23 (a) Fixed-rate debt Fixed rate (6% 2) Semiannual debt payment Swap fixed receipt Net income effect Swap variable rate 5.7% X 1/2 X $100,000 6.7% X 1/2 X $100,000 Net interest expense 6/30/10 $100,000 X3% $ 3,000 3,000 $ 0 $ $ 2,850 0 2,850 (b) 12/31/10 $100,000 X3% $ 3,000 3,000 $ 0 $ 3,350 $ 3,350 An interest rate swap in which a company changes its interest payments from fixed to variable is a fair value hedge because the changes in fair value of both the derivative and the hedged liability offset one another. *EXERCISE 17-24 (a) Variable-rate debt Variable rate Debt payment Debt payment Swap variable received 12/31/10 $10,000,000 X5.8% $ 580,000 580,000 (580,000) 67 (b) 12/31/11 $10,000,000 X6.6% $ 660,000 660,000 (660,000) Net income effect Swap payablefixed ($10,000 X 6%) $ 0 600,000 $ 0 600,000 Net interest expense $ 600,000 $ 600,000 An interest swap in which a company changes its interest payments from variable to fixed is a cash flow hedge because interest costs are always the same. COMPARATIVE ANALYSIS CASE THE COCA-COLA COMPANY and PEPSICO, INC. (a) (1) (2) (3) (4) Cash used in investing activities Cash used for acquisitions and investments Total investment in unconsolidated affiliates at 1231-07 Coca-Cola $(6,719) $(5,653) $ 7,777 PepsiCo $(3,744) $(1,320) $ 4,354 Coca-Colas cash used for acquisitions and investments repre-sented 84% ($5,653 $6,719) of its cash used for investing activities while PepsiCos cash used for acquisitions of investments equaled 35.3% ($1,320 $3,744) of its cash used for investing activities. Coca-Colas total investments were approximately 1.9 times as large as PepsiCos and represented 18% ($7,777 $43,269) of its total assets while PepsiCos investments equaled only 12.6% ($4,354 $34,628) of its total assets. Based on the preceding data, it can be concluded that investments are substantially more important to Coca-Cola than to PepsiCo. Coca-Cola reported the following equity investments on its December 31, 2007 balance sheet: Investments and Other Assets Equity method investments Coca-Cola Enterprises Inc. Coca-Cola Hellenic Bottling Company S.A. Coca-Cola FEMSA, S.A. de C.V. Coca-Cola Amatil Limited Other, principally bottling companies (in millions) $1,637 1,549 996 806 2,301 (b) (1) (2) (c) Coca-Cola reported cost method investments, principally bottling companies in the amount of $488 million in its December 31, 2007 balance sheet. At December 31, 2007, Coca-Cola reported in its Note 11 on Financial Instruments the following: 68 December 31, 2007 (in millions) Trading securities Available-for-sale securities Held-to-maturity securities Cost $102 $252 $ 67 Gross Unrealized Gains $ 2 Gross Unrealized Losses $(3) $(2) Estimated Fair Value $101 $497 $ 67 $247 69 Chapter 10 BE10- 1 Previn Brothers Inc. purchased land at a price of $ 27,000. Closing costs were $ 1,400. An old building was removed at a cost of $ 10,200. What amount should be recorded as the cost of the land? E10- 7 ( Capitalization of Interest) McPherson Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $ 5,000,000 on January 1, 2010. McPherson expected to complete the building by December 31, 2010. McPherson has the following debt obligations outstanding during the construction period. Construction loan -12% interest, payable semiannually, $2,000,00 issued December 31,2009 0 Short-term loan - 10% interest, payable monthly, and principal payable at maturity on May 30, 2011 1,600,000 Long-term loan - 11%, payable on January 1 of each year, Principal payable on January 1, 2014 1,000,000 Instructions ( Carry all computations to two decimal places.) ( a) Assume that McPherson completed the office and warehouse building on December 31, 2010, as planned at a total cost of $ 5,200,000, and the weighted average of accumulated expenditures was $ 3,800,000. Compute the avoidable interest on this project. ( b) Compute the depreciation expense for the year ended December 31, 2011. McPherson elected to depreciate the building on a straight- line basis and determined that the asset has a useful life of 30 years and a salvage value of $ 300,000. E10- 17 ( Nonmonetary Exchange) Alatorre Corporation, which manufactures shoes, hired a recent college graduate to work in its accounting department. On the first day of work, the accountant was assigned to total a batch of invoices with the use of an adding machine. Before long, the accountant, who had never before seen such a machine, managed to break the machine. Alatorre Corporation gave the machine plus $ 320 to the machine plus $320 to Mills Business Machine Company ( dealer) in exchange for a new machine. Assume the following information about the machines. Instructions For each company, prepare the necessary journal entry to record the exchange. ( The exchange has commercial substance.) E10- 16 ( Asset Acquisition) Logan Industries purchased the following assets and constructed a building as well. All this was done during the current year. Assets 1 and 2 These assets were purchased as a lump sum for $ 104,000 cash. The following information was gathered. 70 Asset 3 This machine was acquired by making a $ 10,000 down payment and issuing a $ 30,000, 2- year, zero- interest-bearing note. The note is to be paid off in two $ 15,000 installments made at the end of the first and second years. It was estimated that the asset could have been purchased outright for $ 35,900. Asset 4 This machinery was acquired by trading in used machinery. ( The exchange lacks commercial substance.) Facts concerning the trade- in are as follows. Asset 5 Office equipment was acquired by issuing 100 shares of $ 8 par value common stock. The stock had a market value of $ 11 per share. Construction of Building A building was constructed on land purchased last year at a cost of $ 180,000. Construction began on February 1 and was completed on November 1. The payments to the contractor were as follows. To finance construction of the building, a $ 600,000, 12% construction loan was taken out on February 1. The loan was repaid on November 1. The firm had $ 200,000 of other outstanding debt during the year at a borrowing rate of 8%. Instructions Record the acquisition of each of these assets. E10- 25 ( Disposition of Assets) On April 1, 2010, Pavlova Company received a condemnation award of $ 410,000 cash as compensation for the forced sale of the companys land and building, which stood in the path of a new state highway. The land and building cost $ 60,000 and $ 280,000, respectively, when they were acquired. At April 1, 2010, the accumulated depreciation relating to the building amounted to $ 160,000. On August 1, 2010, Pavlova purchased a piece of replacement property for cash. The new land cost $ 90,000, and the new building cost $ 380,000. Instructions Prepare the journal entries to record the transactions on April 1 and August 1, 2010. SOLUTIONS BRIEF EXERCISE 10-1 $27,000 + $1,400 + $10,200 = $38,600 EXERCISE 10-7 (a) Weighted-Average Accumulated Expenditures Avoidable Interest X Interest Rate = Avoidable Interest 71 $2,000,000 1,800,000 $3,800,000 Weighted-average interest rate computation 10% short-term loan 11% long-term loan 12% 10.38% $240,000 186,840 $426,840 Principal $1,600,000 1,000,000 $2,600,000 Interest $160,000 110,000 $270,000 Total Interest Total Principal (b) Construction loan Short-term loan Long-term loan = $270,000 $2,600,000 = 10.38% Actual Interest $2,000,000 X 12% = $1,600,000 X 10% = $1,000,000 X 11% = Total $240,000 160,000 110,000 $510,000 Because avoidable interest is lower than actual interest, use avoidable interest. Cost $5,200,000 Interest capitalized 426,840 Total cost $5,626,840 Depreciation Expense = $5,626,840 $300,000 = $177,561 EXERCISE 10-17 Alatorre Corporation Machine ($320 + $85).................................................................... Accumulated Depreciation............................................................. Loss on Disposal of Machine......................................................... Machine.............................................................................. Cash.................................................................................... *Computation of loss: Book value of old machine ($290 $140) Fair value of old machine Loss on exchange Mills Business Machine Company Cash................................................................................................ ........................................................................................................ $150 (85) $ 65 405 140 65* 290 320 320 72 Inventory......................................................................................... Cost of Goods Sold......................................................................... Sales.................................................................................... Inventory............................................................................. EXERCISE 10-16 LOGAN INDUSTRIES Acquisition of Assets 1 and 2 Use appraised values to break-out the lump-sum purchase 85 270 405 270 Value on Books Description Machinery Office Equipment Appraisal $ 90,000 30,000 $120,000 Percentage 90/120 30/120 Lump-Sum $104,000 104,000 $78,000 26,000 Machinery....................................................................................... Office Equipment............................................................................ Cash..................................................................................... Acquisition of Asset 3 78,000 26,000 104,000 Use the cash price as a basis for recording the asset with a discount recorded on the note. Machinery....................................................................................... Discount on Notes Payable ($40,000 $35,900)............................... Cash.................................................................................... Notes Payable..................................................................... Acquisition of Asset 4 Since the exchange lacks commercial substance, a gain will be recognized in the proportion of cash received ($10,000/$80,000) times the $16,000 gain (FMV of $80,000 minus BV of $64,000). The gain recognized will then be $2,000 with $14,000 of it being unrecognized and used to reduce the basis of the asset acquired. Machinery ($70,000 $14,000).................................................. Accumulated Depreciation.......................................................... Cash............................................................................................. ..................................................................................................... Machinery........................................................................ Gain on Disposal of Machinery...................................... 56,000 36,000 10,000 100,000 2,000 73 35,900 4,100 10,000 30,000 Acquisition of Asset 5 In this case the Office Equipment should be placed on Logans books at the fair market value of the stock. The difference between the stocks par value and its fair value should be credited to Paid-in Capital in Excess of Par. Office Equipment (100 X $11 per share).................................... Common Stock................................................................ Paid-in Capital in Excess of Par...................................... *($11 $8) X 100 Shares. Schedule of Weighted-Average Accumulated Expenditures Current Year Capitalization Period 9/12 9/12 5/12 2/12 0/12 Weighted-Average Accumulated Expenditures $135,000 90,000 150,000 80,000 0 $455,000 1,100 800 300* Date February 1 February 1 June 1 September 1 November 1 Amount $ 180,000 120,000 360,000 480,000 100,000 $1,240,000 Note that the capitalization is only 9 months in this exercise. Avoidable Interest Weighted-Average Accumulated Expenditures $455,000 X Interest Rate 12% = Avoidable Interest $54,600 Since the weighted-average expenditures are less than the amount of specific borrowing, the specific borrowing rate is used. Land Cost $ 180,000 Building Cost $1,114,600 ($1,060,000 + $54,600) Land............................................................................................. ..................................................................................................... Building....................................................................................... Cash................................................................................. Interest Expense.............................................................. 180,000 1,114,600 1,240,000 54,600 74 EXERCISE 10-25 April 1 Cash....................................................................................... ............................................................................................... Accumulated DepreciationBuilding.................................. Land........................................................................... Building..................................................................... Gain on Disposal of Plant Assets.............................. *Computation of gain: Book value of land Book value of building ($280,000 $160,000) Book value of land and building Cash received Gain on disposal Aug. 1 $ 60,000 120,000 180,000 410,000 $230,000 90,000 380,000 470,000 410,000 160,000 60,000 280,000 230,000* Land....................................................................................... ............................................................................................... Building................................................................................. Cash........................................................................... 75 Chapter 11 BE11- 2 Lockard Company purchased machinery on January 1, 2010, for $ 80,000. The machinery is estimated to have a salvage value of $ 8,000 after a useful life of 8 years. ( a) Compute 2010 depreciation expense using the straight- line method. ( b) Compute 2010 depreciation expense using the straight- line method assuming the machinery was purchased on September 1, 2010. E11- 5 ( Depreciation Computations Four Methods) Maserati Corporation purchased a new machine for its assembly process on August 1, 2010. The cost of this machine was $ 150,000. The company estimated that the machine would have a salvage value of $ 24,000 at the end of its service life. Its life is estimated at 5 years and its working hours are estimated at 21,000 hours. Year- end is December 31. Instructions Compute the depreciation expense under the following methods. Each of the following should be considered unrelated. ( a) Straight- line depreciation for 2010. ( b) Activity method for 2010, assuming that machine usage was 800 hours. ( c) Sum- of- the- years- digits for 2011. ( d) Double- declining- balance for 2011. E11- 16 ( Impairment) Presented below is information related to equipment owned by Pujols Company at December 31, 2010. Assume that Pujols will continue to use this asset in the future. As of December 31, 2010, the equipment has a remaining useful life of 4 years. Instructions ( a) Prepare the journal entry ( if any) to record the impairment of the asset at December 31, 2010. ( b) Prepare the journal entry to record depreciation expense for 2011. ( c) The fair value of the equipment at December 31, 2011, is $ 5,100,000. Prepare the journal entry ( if any) necessary to record this increase in fair value. E11- 22 ( Depletion Computations Mining) Henrik Mining Company purchased land on February 1, 2010, at a cost of $ 1,250,000. It estimated that a total of 60,000 tons of mineral was available for mining. After it has removed all the natural resources, the company will be required to restore the property to its previous state because of strict environmental protection laws. It estimates the fair value of this restoration obligation at $ 90,000. It believes it will be able to sell the property afterwards for $ 100,000. It incurred developmental costs of $ 200,000 before it was able to do any mining. In 2010 resources removed totaled 30,000 tons. The company sold 24,000 tons. Instructions Compute the following information for 2010. ( a) Per unit mineral cost. ( b) Total material cost of December 31, 2010, inventory. ( c) Total materials cost in cost of goods sold at December 31, 2010. 76 E11- 26 ( Book vs. Tax ( MACRS) Depreciation) Elwood Inc. purchased computer equipment on March 1, 2010, for $ 36,000. The computer equipment has a useful life of 10 years and a salvage value of $ 3,000. For tax purposes, the MACRS class life is 5 years. Instructions ( a) Assuming that the company uses the straight- line method for book and tax purposes, what is the depreciation expense reported in ( 1) the financial statements for 2010 and ( 2) the tax return for 2010? ( b) Assuming that the company uses the double- declining- balance method for both book and tax purposes, what is the depreciation expense reported in ( 1) the financial statements for 2010 and ( 2) the tax return for 2010? ( c) Why is depreciation for tax purposes different from depreciation for book purposes even if the company uses the same depreciation method to compute them both? Comparative Analysis Case The Coca- Cola Company and PepsiCo., Inc. Instructions Go to the books companion website and use information found there to answer the following questions related to The Coca- Cola Company and PepsiCo, Inc. ( a) What amount is reported in the balance sheets as property, plant, and equipment ( net) of Coca- Cola at December 31, 2007, and of PepsiCo at December 29, 2007? What percentage of total assets is in-vested in property, plant, and equipment by each company? ( b) What depreciation methods are used by Coca- Cola and PepsiCo for property, plant, and equipment? How much depreciation was reported by Coca- Cola and PepsiCo in 2007, 2006, and 2005? ( c) Compute and compare the following ratios for Coca- Cola and PepsiCo for 2007. ( 1) Asset turnover. ( 2) Profit margin on sales. ( 3) Rate of return on assets. ( d) What amount was spent in 2007 for capital expenditures by Coca- Cola and PepsiCo? What amount of interest was capitalized in 2007? SOLUTIONS BRIEF EXERCISE 11-2 (a) (b) $80,000 $8,000 8 $80,000 $8,000 = $9,000 X 4/12 = $3,000 EXERCISE 11-5 77 (a) ($150,000 $24,000) 5 = $25,200/yr. = $25,200 X 5/12 = $10,500 2010 DepreciationStraight line = $10,500 (b) ($150,000 $24,000) 21,000 = $6.00/hr. 2010 DepreciationMachine Usage = 800 X $6.00 = $4,800 (c) Machine Year 1 2 Allocated to 2010 2011 $17,500* $17,500 * $42,000 X 5/12 = $17,500 ** $42,000 X 7/12 = $24,500 *** $33,600 X 5/12 = $14,000 2011 DepreciationSum-of-the-Years-Digits = $38,500 (d) 2010 40% X ($150,000) X 5/12 = $25,000 2011 40% X ($150,000 $25,000) = $50,000 OR 1st full year (40% X $150,000) = $60,000 2nd full year [40% X ($150,000 $60,000)] = $36,000 2010 Depreciation = 2011 Depreciation = 5/12 X $60,000 = 7/12 X $60,000 = 5/12 X $36,000 = $25,000 $35,000 15,000 $50,000 $24,500** 14,000*** $38,500 Total 5/15 X $126,000 = $42,000 4/15 X $126,000 = $33,600 EXERCISE 11-16 (a) December 31, 2010 Loss on Impairment...................................................................... Accumulated DepreciationEquipment.......................... Note: The asset fails the recoverability test ($7,000,000 < $8,000,000) Cost................................................................. $9,000,000 78 3,600,000 3,600,000 Accumulated depreciation.............................. Carrying amount............................................. Fair value........................................................ Loss on impairment........................................ (b) 1,000,000 8,000,000 4,400,000 $3,600,000 December 31, 2011 Depreciation Expense................................................................... Accumulated DepreciationEquipment.......................... New carrying amount...................................... Useful life....................................................... Depreciation per year...................................... $4,400,000 4 years $1,100,000 1,100,000 1,100,000 (c) No entry necessary. Restoration of any impairment loss is not permitted. EXERCISE 11-22 Depletion base: $1,250,000 + $90,000 $100,000 + $200,000 = $1,440,000 Depletion rate: $1,440,000 60,000 = $24/ton (a) (b) (c) Per unit mineral cost: $24/ton 12/31/10 inventory: $24 X 6,000 tons = $144,000 Cost of goods sold 2010: $24 X 24,000 tons = $576,000 *EXERCISE 11-26 (a) (1) (2) (b) (1) (2) (c) ($36,000 $3,000) X 1/10 X 10/12 = $2,750 depreciation expense for book purposes. $36,000 X 1/5 X 1/2 = $3,600 depreciation for tax purposes. $36,000 X 20% X 10/12 = $6,000 depreciation expense for book purposes. $36,000 X 20% = $7,200 depreciation expense for tax purposes. Differences will occur for the following reasons: 1. half-year convention used for tax purposes. 2. estimated useful life and tax life different. 3. tax system ignores salvage value. COMPARATIVE ANALYSIS CASE 79 (a) Property, plant, and equipment, net of accumulated depreciation: Coca-Cola at 12/31/07 PepsiCo at 12/29/07 Percent of total assets: Coca-Cola ($8,493 $43,269) PepsiCo ($11,228 $34,628)32.4% 19.6% $8,493 million $11,228 million (b) Coca-Cola and PepsiCo depreciate property, plant, and equipment principally by the straight-line method over the estimated useful lives of the assets. Depreciation expense was reported by Coca-Cola (includes amortization) and PepsiCo as follows: Coca-Cola 2007 2006 2005 (c) (1) Asset turnover: PepsiCo = .79 $39,474 $34,628 + $29,930 2 Profit margin: Coca-Cola $5,981 $28,857 (3) Rate of return on assets: 80 = 20.73% PepsiCo $5,658 $39,474 = 14.33% = 1.22 $1,163 million 938 million 932 million PepsiCo $1,426 million 1,406 million 1,308 million Coca-Cola $28,857 $43,269 + $29,963 2 (2) Coca-Cola $5,981 $43,269 + $29,963 2 = 16.3% $5,658 PepsiCo $34,628 + $29,930 2 = 17.5% With the exception of the profit margin, each of PepsiCos ratios is superior to Coca-Colas, especially the asset turnover. PepsiCos lower profit margin is primarily due to its large food business which experiences larger investments in property, plant, and equipment and lower margins compared to the beverage segment. Coca-Cola sales are derived almost entirely from higher margin beverages. (d) Coca-Colas capital expenditures were $1,648 million in 2007 while PepsiCos capital expenditures were $2,430 million in 2007. PepsiCo reported capitalized interest of $21 million in 2007 and $16 million in 2006. Coca-Cola did not report any capitalized interest. 81

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UT Dallas - AIM - 6330
CHAPTER3THE ACCOUNTING THE INFORMATION SYSTEM INFORMATION (Appendix 3B excluded)IntermediateAccountingI Prof.VolkanMusluChapter 3 -1Basic TerminologyEve (Sourceor causeof changeon A, L, E) nt Eve (S Transaction (external events) Transaction (e Accou
UT Dallas - AIM - 6330
CHAPTER4INCOME STATEMENT AND RELATED INCOME INFORMATION INFORMATIONIntermediateAccountingI Prof.VolkanMusluChapter 4 -1Income StatementUsefulnessEvaluatepast pe rform . ance Pre dicting futurepe rform . ance He asse therisk or unce lp ss rtainty of
UT Dallas - AIM - 6330
CHAPTER18 18REVENUE RECOGNITION (Installment sales method excluded pages 949-956)IntermediateAccountingI Prof.VolkanMusluChapter 18-1The Current EnvironmentThere nuere ve cognition principle Re : cognizere nue ve(1) whe it is re n alize or re d ali
UT Dallas - AIM - 6330
CHAPTER5BALANCE SHEET AND STATEMENT OF BALANCE CASH FLOWS CASHIntermediateAccounting Prof.VolkanMusluChapter 5 -1Chapter 5 -2Chapter 5 -3Chapter 5 -4Balance SheetUsefulness of the Balance SheetEvaluating thecapital structure . Asse risk and futu
UT Dallas - AIM - 6330
CHAPTER7CASH AND RECEIVABLES (Appendix A excluded)IntermediateAccountingI Prof.VolkanMusluChapter 7 -1What is Cash?CashS tandard m diumof e e xchange Basis for m asuring and accounting for all ite s e m Exam s: coin, curre availablefunds on de ple
UT Dallas - AIM - 6330
CHAPTER8VALUATION OF INVENTORIES: VALUATION A COST-BASIS APPROACH COST-BASISIntermediateAccountingI Prof.VolkanMusluChapter 8 -1Inventory IssuesClassificationFinishe Goods: Ite s he for sale(books) d m ld Raw m rial and Work in proce Goods to beuse
UT Dallas - AIM - 6330
CHAPTER9INVENTORIES: INVENTORIES: ADDITIONAL VALUATION ISSUES ADDITIONAL (Appendix A included)IntermediateAccountingI Prof.VolkanMusluChapter 9 -1Lower-of-Cost-or-MarketRationale Abandon thehistorical cost principlewhe thefutureutility : n (re nue v
UT Dallas - AIM - 6330
CHAPTER17 17INVESTMENTS (All appendices included)IntermediateAccountingI Prof.VolkanMusluChapter 17-1I nve e stm ntsInvestments in Debt Investments Securities SecuritiesHeld-to-maturity Held-to-maturity securities securities Available-for-sale Avai
UT Dallas - AIM - 6330
CHAPTER10 10ACQUISITION AND DISPOSITION OF ACQUISITION PROPERTY, PLANT, AND EQUIPMENT PROPERTY,IntermediateAccountingI Prof.VolkanMusluChapter 10-1Property, Plant, and EquipmentPrope plant, and e rty, quipm nt include land, buildings, and e e s quip
UT Dallas - AIM - 6330
CHAPTER11 11DEPRECIATION, IMPAIRMENTS, DEPRECIATION, AND DEPLETION ANDIntermediateAccountingI Prof.VolkanMusluChapter 11-1Depreciation - Method of Cost AllocationDe ciation is theproce of allocating thecost of t angibleasse to pre ss ts e nsein a sy
UT Dallas - AIM - 6330
CHAPTER INTANGIBLE12 12ASSETSIntermediateAccountingI Prof.VolkanMusluChapter 12-1Intangible Asset IssuesC haracte ristics(1) The lack physical e nce y xiste . (2) The arenot financial instrum nts. y e Norm classifie as long-te asse ally d rm t. C m
UT Dallas - AIM - 6330
Designed to Grow2007 Annual ReportContentsLetter to Shareholders Designed to Grow Designed to Win Designed to Deliver Designed to Lead Financial Contents Corporate Officers Board of Directors Shareholder Information 11-Year Financial Summary P&amp;G at a G
UT Dallas - AIM - 6330
UNITED STATES SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2007 OR TRANSITION REPORT PURSUANT TO SECTION 13
UT Dallas - AIM - 6330
Designed to Grow2007 Annual ReportContentsLetter to Shareholders Designed to Grow Designed to Win Designed to Deliver Designed to Lead Financial Contents Corporate Officers Board of Directors Shareholder Information 11-Year Financial Summary P&amp;G at a G
UT Dallas - AIM - 6330
Common Stock InformationShareholder InformationAnnual MeetingThe Annual Meeting of Shareholders will be held at Frito-Lay Corporate Headquarters, 7701 Legacy Drive, Plano, Texas, on Wednesday, May 7, 2008, at 9:00 a.m. local time. Proxies for the meeti
Alabama - ECON - 100A
HCG DietByMiHyunandThuyDescriptionHCGstandsforhumanchorionic gonadatropin,thehormone producedbypregnantwomen. Researcherssuggestsasmall amountofHCGinjectionorthe treatmenttakenbyoralcanhelp weightlossof1to2lbsperday.MealPlanDuringthefirsttwodaysoftak
UCCS - ENGL - 2000
2 A HtsroRY, R Hr,roRIC, ND H uvt,tNISMD Towarda I ulore omprehensiveefinition C T echnical ommunication C &quot;fRUS S E L L h UT T E RWhen I beganto teachtechnical communication about thirty-five yeius ago, my chief resources were a big book (Mills and Wa
UNI - ECON - 151
There are many different groups and sub groups of economics, but the two groups I am comparing are known as Classical Economics and Keynesian Economics. Classical Economics is defined as modern economic theories that study the effects of resource scarcity
UC Riverside - BIO - 05LA
Question: How will increasing substrate concentration affect the rate (v0) of an enzymatic reaction if the enzyme concentration is held constant for the different trials? Hypothesis: An increase in substrate concentration will increase the rate of an enzy
UC Riverside - PHIL - 201
RLST/ETST 012/W/X TAs Casey, Doran, Guida, Johnson, Knight, SolsoProf. Vivian-Lee Nyitray Winter 2011Instructions and Prompt for Mama Lola Writing Assignment You will write two essays. Each response should be approximately 2-1/2 pages in length (approxi
UC Riverside - PHIL - 201
USC - EE - 555
1Case Study of Mission-Critical Smart Grid Remedial Action Schemes Via EthernetDavid Dolezilek, Schweitzer Engineering Laboratories, Inc.AbstractWhile special protection systems (SPSs) often shed load, recent sophisticated remedial action schemes (RASs
USC - EE - 555
IEEE METROPOLITAN LOS ANGELES SECTION GENERAL MEMBERSHIP MEETING Monday, February 14, 2011, 11:30am 1:30pm http:/www.ieee.org &amp; http:/www.ieeeusa.orgTOPIC:IEEE METRO SECTION Jacky Wong, P.E Section Chair, MWD Charles Cai, P.E Vice Chair, SCE Yvonne Marc
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0199-SIP-2010-PIEEEAdaptive Stochastic Control for the Smart GridRoger N. Anderson, IEEE member, Albert Boulanger, Warren B. Powell, IEEE member, and Warren Scott AbstractApproximate Dynamic Programming driven Adaptive Stochastic Control for the Smart
USC - EE - 555
The Smart Grid Is Not About Residential Energy EfficiencyYetMichael Reid, E Source ABSTRACT References to the energy-efficiency benefits expected to flow from smart grid deployments are commonplace. Not all actions that reduce the energy bill, however, c
San Jose State - COMM - 40
PAPER ASSIGNMENT #1 Critical Thinking Worth 20 pointsPurpose: The purpose of this assignment is the application of the critical thinking concepts we have learned thus far to your own life experiences. This assignment will focus on Chapter 1 of the Verlin
San Jose State - COMM - 40
Comm. 40, Paper Assignment 3 Audience Analysis Worth 25 Points Purpose: The purpose of this assignment is to familiarize you with the importance of knowing your audience. Different people respond to different ideas, and if you havent thought about your au
San Jose State - COMM - 40
Listen Speak EngageSanJosStateUniversity CommunicationStudies Comm.40,Argumentation&amp;Advocacy,Section3&amp;4,Spring2011Instructor: Office location: Telephone: Email: Office hours: Class days/time: Classroom: Prerequisites: GE/SJSU Studies Category CatalogDes
San Jose State - ANTH - 012
San Jos State University Social Sciences/Anthropology ANTH012, Introduction to Human Evolution, Section 3, Spring, 2011Instructor: Office Location: Telephone: Email: Office Hours: Class Days/Time: Classroom: GE/SJSU Studies Category: Dr. Elizabeth Weiss
San Jose State - ECON - 1A
San Jos State University Spring 2011 ECON 1A, Principles of MacroeconomicsSection 07 Course Code 20383 Lecture Section 08 Course Code 20384 Aplia Activity Joanna Sobala DMH 143 joanna.sobala@sjsu.edu Mo We 12:00 1:00 pm and by appointment Mo We 10:30AM 1
San Jose State - BBC - 203
INTRODUCTION TO PHILOSOPHYSpring 2011 T Th 10:30-11:45, sec 3 BBC 203 Prof. Brown Office Hours: T Th 1:45-2:45, and by appointment FO 233, 924-4524. Karin.Brown@sjsu.edu Website: http:/www.sjsu.edu/people/karin.brown/In this course we will explore the d
Berkeley - ANTHRO - 2/AC
Anthro 2 Read: Ashmore; Lightfoot + Parrish 1/21/11 I. INTRODUCTION 1. Anthropology (sub-fields) Archaeology (anthropological archaeology) Cultural Anthropology (Ethnography) Linguistic Anthropology Biological Anthropology (Bioarchaeology) 2. Archaeologic
Berkeley - ANTHRO - 2/AC
Anthro 2 Read: Deagan 91, Lightfoot 07 1/24/11 II. WHY STUDY ARCHAEOLOGY? 2. Study of Recent History Historical Archaeology A. Selective Representation of Past Excluded Pasts Africans and African-Americans Kathleen Deagan Archaeology can study both rich a
Berkeley - ANTHRO - 2/AC
Anthro 2 Read: Rathje + Murphy 2001 1/26/11 II. WHY STUDY ARCHAEOLOGY? 2. Study of Recent History C. Contemporary Perspective William Rathje Garbage Project Findings: People Under Report/Over Report i) Alcohol Consumption ii) Certain Food (Lean Cuisine Sy
Berkeley - ANTHRO - 2/AC
Anthro 2 Read: McManamon 94, Light 05 1/28/11 II. WHY STUDY ARCHAEOLOGY? 4. Stewardship of the Past -Preserve and Protect Arch A. Public Outreach (two reasons why critical) i. Looting/Destruction Federal/State Legislation Cultural Resource Management (CRM
Berkeley - ANTHRO - 2/AC
Anthro 2 Reading: Fagan 1993 1/31/11 III.CHALLENGES STUDYING ARCH. MATERIAL 1. Differential Preservation of Material Remains Arch. Record is Patchy; Preservation Due to: A. Type of Material (Organic/Inorganic) hardness, density of material, chemical compo
Berkeley - ANTHRO - 2/AC
Anthro 2 Read: Ashmore pp 60-65 2/2/2011 III.CHALLENGES STUDYING ARCH. MATERIAL 1. Differential Preservation of Material Remains E. Best Contexts for Preservation i. Stable Anaerobic Conditions ii Freezing Conditions (Ice Man) iii. Arid Conditions rockshe
Berkeley - ANTHRO - 2/AC
Anthro 2AC Read: Stewart 2002 2/4/2011 III.CHALLENGES STUDYING ARCH. MATERIAL 1. Differential Preservation of Material Remains G. Archaeological Data: i Artifacts; ii. Ecofacts iii. Middens (Shell Middens) iv.Features (pits, house structures,burials, post
Berkeley - ANTHRO - 2/AC
Anthro 2 Read: Schneider; Light + Luby 2/7/11 III.CHALLENGES STUDYING ARCH. MATERIAL 3. Complex Formation of Archaeological Sites B. Transformational Processes (Post-Depositional) Taphonomy of Materials; Natural Agents (decay, erosion); Human Agents (plow
Berkeley - ANTHRO - 2/AC
Anthro 2 Read: Zimmerman, Watkins, Light 2/9/11 Meet Your GSI (Mini-Series); Alex Baer III.CHALLENGES STUDYING ARCH. MATERIAL 4. Dynamic Nature of Cultural Landscapes SF Bay Cultural Landscape; Complex Stratigraphy; Palimpsests: Land Use Modification; San
Berkeley - ANTHRO - 2/AC
Anthro 2AC Read: Ashmore Ch. 2 2/11/11 IV. ARCH. AND CONTEMPORARY SOCIETY 1. Stewards and Stakeholders Archaeologists as Primary Stewards of the Past? Archaeologists Adopt Native Voice 2. Scientific Colonialism (Zimmerman) Archaeologys Roots as Western Sc
Berkeley - ANTHRO - 2/AC
Anthro 2 Read: Ashmore + Sharer Ch. 3 2/14/11 V. HISTORY OF ARCHAEOLOGY 1. Practice of American Archaeology (1900-1920) A. Roots of Anthropological Archaeology B. Study of Native American Societies Historic Continuity Present and Past Societies Smithsonia
Berkeley - ANTHRO - 2/AC
Berkeley - ANTHRO - 2/AC
Berkeley - ANTHRO - 2/AC
Berkeley - ANTHRO - 2/AC
A-Whaling We Will Go: Encounters of Knowledge and Memory at the Makah Cultural and Research Center Author(s): Patricia Pierce Erikson Source: Cultural Anthropology, Vol. 14, No. 4 (Nov., 1999), pp. 556-583 Published by: Blackwell Publishing on behalf of t
Berkeley - ANTHRO - 2/AC
Berkeley - ANTHRO - 2/AC
Recognizing Indian Folk History as Real History: A Fort Ross Example Author(s): Glenn J. Farris Source: American Indian Quarterly, Vol. 13, No. 4, Special Issue: The California Indians (Autumn, 1989), pp. 471-480 Published by: University of Nebraska Press
Berkeley - ANTHRO - 2/AC
Berkeley - ANTHRO - 2/AC
Berkeley - ANTHRO - 2/AC
Berkeley - ANTHRO - 2/AC
Berkeley - ANTHRO - 2/AC
Berkeley - ANTHRO - 2/AC
1 MOUND BUILDING BY CALIFORNIA HUNTER-GATHERERS Kent G. Lightfoot and Edward M. LubyOne of the most significant recent developments in North American archaeology is the recognition that hunter-gatherer communities constructed complex and extensive mounde
Berkeley - ANTHRO - 2/AC
Berkeley - ANTHRO - 2/AC
Berkeley - ANTHRO - 2/AC
Berkeley - ANTHRO - 2/AC
archaeology and IndiansExperimenting with Low-Impact Field MethodsKENT G. LIGHTFOOT AS A YOUNG LAD GROWING UP in Santa Rosa my vision of archaeology was that you spent most of the time in the hot sun digging at the ground with a dental pick and carefull
Berkeley - ANTHRO - 2/AC
archaeology and IndiansRethinking Archaeological Field MethodsKENT G. LIGHTFOOT The beeping noise has stopped. Otis Parrish looks up as he quits walking the rope lines that mark his exact location on the archaeological site. The coastal Californian sun
Berkeley - ANTHRO - 2/AC
Berkeley - ANTHRO - 2/AC