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Financial accounting tools for business decision making- 8th edition solutions manual

Solutions manual

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Intermediate Accounting (INTERACCOUNT0720)

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Hương Giang3 years ago
Chị ơi chị có solutions của các chapter khác của sách này không ạ? Em cảm ơn ạ.

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Kế toán tài chính căn bản ACCT financial accounting

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Kimmel, Financial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 2-

Financial Accounting Tools for Business Decision Making 8th Edition

Solutions Manual Kimmel Weygandt Kieso

testbankarea/download/financial-accounting-tools-business-decision-

making-8th-edition-solutions-manual-kimmel-weygandt-kieso/

TEST BANK for Financial Accounting Tools for Business Decision Making

8th Edition by Paul D. Kimmel

testbankarea/download/financial-accounting-tools-business-decision-

making-8th-edition-test-bank-kimmel-weygandt-kieso/

CHAPTER 2

A Further Look at Financial Statements

Learning Objectives

Identify the sections of a classified balance sheet.
Use ratios to evaluate a company’s profitability, liquidity, and solvency.
Discuss financial reporting concepts.

Summary of Questions by Learning Objectives and Bloom’s Taxonomy

Item LO BT Item LO BT Item LO BT Item LO BT Item LO BT Questions

1 K 5. 1 K 9. 2 C 13. 3 K 17. 3 C
1 K 6. 2 C 10. 2 K 14. 3 C 18. 3 C
1 C 7. 2 K 11. 2 C 15. 3 C 19. 3 C
1 C 8. 2 C 12. 3 K 16. 3 C 20. 1 C Brief Exercises
1 K 3. 2 AP 5. 2 AP 7. 3 K 9. 3 K
1 AP 4. 2 AP 6. 3 K 8. 3 K 10. 3 K Do It! Exercises 1a. 1 AP 1b. 1 AP 2. 2 AP 3. 3 K Exercises
1 AP 4. 1 AP 7. 2 AP 10. 2 AP 12. 3 K
1 AP 5. 1 AP 8. 1, 2 AP 11. 2 AP 13. 3 C
1 AP 6. 1 AP 9. 2 AP Problems: Set A
1 AP 3. 1 AP 5. 2 AP 7. 2 AP
1 AP 4. 2 AN 6. 2 AP 8. 3 E

2-2 Kimmel, Financial Accounting, 8/e, Solutions Manual (For Instructor Use Only)

ASSIGNMENT CHARACTERISTICS TABLE

Problem Number Description

Difficulty Level

Time Allotted (min.)

1A Prepare a classified balance sheet. Simple 10 – 20

2A Prepare financial statements. Moderate 20 – 30

3A Prepare financial statements. Moderate 20 – 30

4A Compute ratios; comment on relative profitability, liquidity, and solvency.

Moderate 20 – 30

5A Compute and interpret liquidity, solvency, and profitability ratios.

Simple 10 – 20

6A Compute and interpret liquidity, solvency, and profit- ability ratios.

Moderate 15 – 25

7A Compute ratios and compare liquidity, solvency, and profitability for two companies.

Moderate 15 – 25

8A Comment on the objectives and qualitative characteristics of financial reporting.

Simple 10 – 20

2-4 Kimmel, Financial Accounting, 8/e, Solutions Manual (For Instructor Use Only)

Debt financing is riskier than equity financing because debt must be repaid at specific points in time, whether the company is performing well or not. Thus, the higher the percentage of assets financed by debt, the riskier the company.

LO 2 BT: C Diff: E TOT: 2 min. AACSB: None AICPA FC: Reporting

(a) Liquidity ratios measure the short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash.

(b) Profitability ratios measure the income or operating success of a company for a given period of time.

LO 2 BT: K Diff: E TOT: 2 min. AACSB: None AICPA FC: Reporting

(a) The increase in earnings per share is good news because it means that profitability has improved.

(b) An increase in the current ratio signals good news because the company improved its ability to meet maturing short-term obligations.

(c) The increase in the debt to assets ratio is bad news because it means that the company has increased its obligations to creditors and has lowered its equity “buffer.”

(d) A decrease in free cash flow is bad news because it means that the company has become less solvent. The higher the free cash flow, the more solvent the company.

LO 2 BT: AN Diff: M TOT: 3 min. AACSB: Analytic AICPA FC: Reporting

(a) The debt to assets ratio and free cash flow indicate the company’s ability to repay the face value of the debt at maturity and make periodic interest payments.

(b) The current ratio and working capital indicate a company’s liquidity and short-term debt- paying ability.

LO 2 BT: C Diff: M TOT: 3 min. AACSB: Analytic AICPA FC: Reporting

(a) Generally accepted accounting principles (GAAP) are a set of rules and practices, having substantial support, that are recognized as a general guide for financial reporting purposes.

(b) The body that provides authoritative support for GAAP is the Financial Accounting Standards Board (FASB).

LO 3 BT: K Diff: E TOT: 2 min. AACSB: None AICPA FC: Measurement

(a) The primary objective of financial reporting is to provide information useful for decision making.

(b) The fundamental qualitative characteristics are relevance and faithful representation. The enhancing qualities are comparability, consistency, verifiability, timeliness, and understandability.

Kimmel, Financial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 2-

LO 3 BT: K Diff: M TOT: 2 min. AACSB: None AICPA FC: Measurement

Dietz is correct. Consistency means using the same accounting principles and accounting methods from period to period within a company. Without consistency in the application of accounting principles, it is difficult to determine whether a company is better off, worse off, or the same from period to period.

LO 3 BT: AN Diff: M TOT: 2 min. AACSB: Analytic AICPA FC: Measurement and Reporting

Comparability results when different companies use the same accounting principles. Consistency means using the same accounting principles and methods from year to year within the same company.

LO 3 BT: C Diff: E TOT: 1 min. AACSB: None AICPA FC: Measurement 16. The cost constraint allows accounting standard-setters to weigh the cost that companies will incur to provide information against the benefit that financial statement users will gain from having the information available.

LO 3 BT: K Diff: E TOT: 1 min. AACSB: None AICPA FC: Measurement

Accounting standards are not uniform because individual countries have separate standard- setting bodies. Currently many non-U. countries are choosing to adopt International Financial Reporting Standards (IFRS). It appears that accounting standards in the United States will move toward compliance with IFRS.

LO 3 BT: C Diff: M TOT: 2 min. AACSB: None AICPA FC: Measurement

Accounting relies primarily on two measurement principles. Fair value is sometimes used when market price information is readily available. However, in many situations reliable market price information is not available. In these instances, accounting relies on historical cost as its basis.
The economic entity assumption states that every economic entity can be separately identified and accounted for. This assumption requires that the activities of the entity be kept separate and distinct from (1) the activities of its owners (the shareholders) and (2) all other economic entities. A shareholder of a company charging personal living costs as expenses of the company is an example of a violation of the economic entity assumption.
At September 27, 2014 Apple’s largest current asset was Cash and cash equivalents of $14, million, its largest current liability is Accounts payable of $16,459 million and its largest item under “Assets” was Property and equipment, net of $16,967 million.

Kimmel, Financial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 2-

BRIEF EXERCISE 2-

Working capital = Current assets – Current liabilities

Current assets ($102,500, Current liabilities 201,200, Working capital ($ 98,700,000)

Current ratio:

Current assets Current liabilities

=

$102,500, $201,200,

= .51:

LO 2 BT: AP Difficulty: Easy TOT: 3 min. AACSB: Analytic AICPA FC: Reporting

BRIEF EXERCISE 2-

(a) Current ratio

Current assets Current liabilities

$262, $293,

= 0:

(b) Debt to assets

Total liabilities Total assets

$376,

$439,

= 85%

$62,300 – $24,787 – $12,000 = $25,

LO 2 BT: AP Difficulty: Easy TOT: 3 min. AACSB: Analytic AICPA FC: Reporting

BRIEF EXERCISE 2-

(a) True. (b) False.

LO 3 BT: K Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement

2-8 Kimmel, Financial Accounting, 8/e, Solutions Manual (For Instructor Use Only)

BRIEF EXERCISE 2-

(a) Predictive value. (b) Confirmatory value. (c) Materiality (d) Complete. (e) Free from error. (f) Comparability. (g) Verifiability. (h) Timeliness.

LO 3 BT: K Difficulty: Easy TOT: 3 min. AACSB: None AICPA FC: Measurement

BRIEF EXERCISE 2-

(a) Relevant. (b) Faithful representation. (c) Consistency.

LO 3 BT: K Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement

BRIEF EXERCISE 2-

(a) 1. Predictive value. (b) 2. Neutral. (c) 3. Verifiable. (d) 4. Timely.

LO 3 BT: K Difficulty: Easy TOT: 2 min. AACSB: None AICPA FC: Measurement

BRIEF EXERCISE 2- 10

(c)

LO 3 BT: K Difficulty: Easy TOT: 1 min. AACSB: None AICPA FC: Measurement

2- 10 Kimmel, Financial Accounting, 8/e, Solutions Manual (For Instructor Use Only)

DO IT! 2-

(a) 2017 2016

($80,000 – $6,000) = $1 ($40,000 – $6,000) = $0. (40,000 + 75,000)/2 (30,000 + 40,000)/

Nguoi’s profitability, as measured by the amount of income available for each share of common stock, increased by 33 percent (($1 – $0)/$0) during 2017. Earnings per share should not be compared across companies because the number of shares issued by companies varies widely. Thus, we cannot conclude that Nguoi Corporation is more profitable than Matisse Corporation based on its higher EPS in 2017.

Net Income Preferred Dividends Average Common Shares Outstanding

(b) 2017 2016

Current ratio

$54,

= 2:

$36,

= 1:

$22,000 $30,

Current assets Current liabilities

Debt to assets ratio

$72,000 = 30% $100,000 = 49%

$240,000 $205,

Total liabilities Total assets

The company’s liquidity, as measured by the current ratio improved from 1:1 to 2:1. Its solvency also improved, because the debt to assets ratio declined from 49% to 30%.

The amount of cash generated by the company above its needs for dividends and capital expenditures increased from $36,500 to $54,000.

LO 1 BT: AP Difficulty: Easy TOT: 3 min. AACSB: Analytic AICPA FC: Reporting

Kimmel, Financial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 2- 11

DO IT! 2-

Monetary unit assumption
Faithful representation
Economic entity assumption
Cost constraint
Consistency
Historical cost principle
Relevance
Periodicity assumption
Full disclosure principle
Materiality
Going concern assumption
Comparability

LO 2 BT: K Difficulty: Hard TOT: 10 min. AACSB: Analytic AICPA FC: Reporting

Kimmel, Financial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 2- 13

EXERCISE 2-

THE BOEING COMPANY

Partial Balance Sheet December 31, 2017 (in millions)

Assets Current assets Cash ....................................................................... $ 9, Debt investments .................................................. 2, Accounts receivable ............................................. 5, Notes receivable ................................................... 368 Inventory ............................................................... 16, Total current assets ...................................... $34, 309

Long-term investments Notes receivable ................................................... 5, Property, plant, and equipment Buildings ............................................................... 21, Less: Accumulated depreciation—buildings ..... 12,795 8,

Intangible assets Patents .................................................................. 12, Total assets .................................................................. $61,

LO 1 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Analytic AICPA FC: Reporting

2- 14 Kimmel, Financial Accounting, 8/e, Solutions Manual (For Instructor Use Only)

EXERCISE 2-

H. J. HEINZ COMPANY

Partial Balance Sheet April 30, 2017 (in thousands)

Assets Current assets

Cash .................................................. $ 373,

Accounts receivable ........................ 1,171, Inventory ........................................... 1,237, Prepaid insurance ............................ 125, Total current assets .................. $ 2, 908 ,

Property, plant, and equipment Land .................................................. 76, Buildings........................................... $4,033, Less: Accumulated depreciation— Buildings .................................. 2,131,260 1,902,109 1,978,

Intangible assets Goodwill ............................................ 3,982, Trademarks ....................................... 757,907 4,740, Total assets ............................................. $ 9, 627 ,

LO 1 BT: AP Difficulty: Medium TOT: 5 min. AACSB: Analytic AICPA FC: Reporting

2- 16 Kimmel, Financial Accounting, 8/e, Solutions Manual (For Instructor Use Only)

EXERCISE 2-

TEXAS INSTRUMENTS, INC.

Balance Sheet December 31, 2017 (in millions)

Assets Current assets Cash ......................................................................... $ 1, Debt investments ..................................................... 1, Accounts receivable ................................................ 1, Inventory .................................................................. 1, Prepaid rent .............................................................. 164 Total current assets ......................................... $ 6, Long-term investments Stock investments ................................................... 637 Property, plant, and equipment Equipment ............................................................... 6, Less: Accumulated depreciation—equipment ...... 3,547 3, Intangible assets Patents ...................................................................... 2, Total assets ...................................................................... $12,

Liabilities and Stockholders’ Equity Current liabilities Accounts payable .................................................... $1, Income taxes payable .............................................. 128 Total current liabilities ..................................... $ 1, 587 Long-term liabilities Notes payable .......................................................... 810 Total liabilities .......................................................... 2, Stockholders’ equity Common stock ......................................................... 2, Retained earnings .................................................... 6, Total stockholders’ equity ............................... 9, Total liabilities and stockholders’ equity ....................... $12,

(Assets = Liabilities + Stockholders’ Equity)

LO 1 BT: AP Difficulty: Medium TOT: 10 min. AACSB: Analytic AICPA FC: Reporting

Kimmel, Financial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 2- 17

EXERCISE 2-

(a) Earnings per share =

Net income Preferred dividends Average common shares outstanding



2017 :

$66,176,000 – 0 (66,282,000 + 64,507,000) / 2

= $ 1.

2016 :

$54,587,000– 0 (73,139,000 + 66,282,000) / 2

= $.

(b) Using net income (loss) as a basis to evaluate profitability, Callaway Golf’s income improved by 21% [($66,176 – $54,587) ÷ 54,587] between 2016 and 2017. Its earnings per share increased by 29% [($1 – $0) ÷ $0].

(c) To determine earnings per share, dividends on preferred stock are subtracted from net income, but dividends on common stock are not subtracted.

LO 2 BT: AP Difficulty: Medium TOT: 7 min. AACSB: Analytic AICPA FC: Reporting

Kimmel, Financial Accounting, 8/e, Solutions Manual (For Instructor Use Only) 2- 19

EXERCISE 2-8 (Continued)

(b) FAIRVIEW CORPORATION Balance Sheet (Continued) July 31, 2017

Liabilities and Stockholders’ Equity Current liabilities Accounts payable ............................................ $ 4, Salaries and wages payable ........................... 2, Total current liabilities ................................. $ 6, Long-term liabilities Notes payable .................................................. 1, Total liabilities .............................................. 7, Stockholders’ equity Common stock ................................................. 16, Retained earnings ........................................... 27, Total stockholders’ equity .......................... 43, Total liabilities and stockholders’ equity ............... $51,

(Assets = Liabilities + Stockholders’ equity)

(c)

$38, Current ratio = = 6 : 1 $6, $7, Debt to assets ratio = = 15% $51,

(Current assets ÷ Current liabilities) and (Total liabilities ÷ Total assets)

(d) The current ratio would not change because equipment is not a current asset and a 5-year note payable is a long-term liability rather than a current liability.

The debt to assets ratio would increase from 15% to 39%*.

Looking solely at the debt to assets ratio, I would favor making the sale because Fairview’s debt to assets ratio of 15% is very low. Looking at additional financial data, I would note that Fairview reported a significant loss for the current year which would lead me to question its ability to make interest and loan payments (and even remain in business) in the future. I would not make the proposed sale unless Fairview convinced me that it would be capable of earnings in the future rather than losses.

2- 20 Kimmel, Financial Accounting, 8/e, Solutions Manual (For Instructor Use Only)

EXERCISE 2-8 (Continued)

I would also consider making the sale but requiring a substantial down- payment and smaller note.

*($7,980 + $20,000) ÷ ($51,480 + $20,000)

LO 1, 2 BT: AP Difficulty: Hard TOT: 20 min. AACSB: Analytic AICPA FC: Reporting

EXERCISE 2-

(a) Beginning of Year End of Year

Working capital $3, 361 – $1,635 = $1, 726 $3,2 17 – $1,601 = $1, 616

Current ratio

$3,

$1,

= 2:

$3,

$1,

= 2:

(Current assets – Current liabilities) and (Current assets ÷ Current liabilities)

(b) Nordstrom’s liquidity decreased slightly during the year. Its current ratio decreased from 2:1 to 2. 01 :1. Also, Nordstrom’s working capital decreased by $110 million.

(c) Nordstrom’s current ratio at both the beginning and the end of the recent year exceeds Best Buy’s current ratio for 201 4 (and 201 3). Nordstrom’s end-of-year current ratio (2. 01 ) exceeds Best Buy’s 2014 current ratio (1*). Nordstrom would be considered much more liquid than Best Buy for the recent year.

*(see text, pg. 55)

LO 2 BT: AP Difficulty: Medium TOT: 10 min. Difficulty: Analytic AICPA FC: Reporting

EXERCISE 2- 10

(a) Current ratio =

$60, $30,

= 2: 1

Working capital = $60,000 – $30,000 = $30,

(Current assets ÷ Current liabilities) and (Current assets – Current liabilities)

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