chapter_03 - Chapter 3 Balance Sheet TO THE NET 1. Cooper...

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Unformatted text preview: Chapter 3 Balance Sheet TO THE NET 1. Cooper Tire a. Total stockholders equity at Decembr 31, 2001 $910,240,000 b. Cost of treasury shares at December 31, 1001 $197,012,000 c. Treasury stock is subtracted from stockholders equity because it represents stock that was sold and later repurchased and not retired. 2. Reebok a. Total current assets at December 31, 2001 $1,194,695,000 b. Net intangibles at December 31, 1001 $76,686,000 c. Intangibles that are amortized have a limited life. 3. Gap Inc. Firms are allowed to incorporate by reference data that is required in the 10-K. Thus the information will not be found in the 10-K. Gap Inc. incorporated by reference to their annual report. Item 8 of the 10-K included this statement. The information required by this item is incorporated herein by reference to pages 27 through 44 of the 2001 annual report to shareholders included as Exhibit 13 to this annual report on Form 10-K. Thus the answers to these questions cannot be found in the 10-K. 41 QUESTIONS 3- 1. Assets - Resources of the firm Liabilities - Debts of the firm - Creditors' interest Owners' Equity - Owners' interest in the firm 3- 2. a. L e. A i. A m. A q. A b. L f. A j. E n. L r. A c. A g. L k. E o. L s. A d. A h. A l. E p. A t. A 3- 3. a. TA c. IA e. IA g. TA i. TA k. IV b. CA d. CA f. CA h. CA j. CA l. TA 3- 4. They are listed in order of liquidity, which is the ease with which they can be converted to cash. 3- 5. Marketable securities are held as temporary investments or idle cash. They are short-term, low risk, highly liquid, low yield. Examples are treasury bills and commercial paper. Investments are long-term, held for control or future use in operations. They are usually less liquid and expected to earn a higher return. 3- 6. Accounts receivable represents the money that the firm expects to collect; accounts payable represents the debts for goods purchased by a firm. 3- 7. A retailing firm will have only finished goods and supplies. A manufacturing firm will have raw materials, work in process, finished goods, and supplies. 3- 8. Depreciation measures the wearing away of the usefulness of the asset. Tools, machinery, and buildings are depreciated because they wear out. Land is not depreciated, since its value typically does not decline. If the land has minerals or natural resources, it may be subject to depletion. 3- 9. Straight-line depreciation is better for reporting, since gives higher profits than does accelerated depreciation. Double-declining balance is preferable for tax purposes, since it allows the highest depreciation and, thereby, lower taxes in the early years of the life of the asset. Using double-declining balance for taxes increases the firm's cash flow in the short run. 43 3-10. The rent is treated as a liability because it is unearned. The rental agency owes the tenant the use of the property until the end of the term of the agreement. The rent should be recognized as income over the period covered by the rent. period covered by the rent....
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chapter_03 - Chapter 3 Balance Sheet TO THE NET 1. Cooper...

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