Question and Answer - 60

Some hoteliers believe that a hotel's balance sheet is the best indicator of its economic health
while others point to the income statement as the better measure of financial strength. Which
document do you believe is most important? Give two reasons to support your answer.
Good recordkeeping is an important part of a hotel's safety and security efforts. Identify three
reasons why this is so.
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Identify two advantages of using a centralized accounting system in a hotel, as well as two
disadvantages of such a system.
Assume that you observe two children repeatedly coming down to the lobby area during the time
that the breakfast bar is in operation, and that each time these two children take very large
amounts of food back to their room. Assume also that you know they are guests with their family
at the property. What, if anything,
Do you think the use of training simulations for the hospitality industry will increase in the
future? Explain your answer.
Good relations with local law enforcement officials are extremely helpful to a hotel. What are
two specific activities the managers of a hotel can undertake to build positive relations with the
local police?
What special challenges would QBP face in expanding its business by building a warehouse in
Ogden, Utah? What steps would you take to meet these challenges?
In your opinion, what were the key factors in determining Yvon Chouinardâ€™s success as the
entrepreneur who founded Patagonia?
Explain how the rational decision making process was applied to solve a problem at Southwest
Airlines.
Review Porterâ€™s generic strategies. Which one of these strategies would you recommend for
the Washington Post Company? Explain.
List possible alternatives for solving the problem.
Describe the four main steps in the training process. In your view, how important is the training
process for organizations?

Why did the founders of Elm City Market feel a co-op would better serve their community than a
grocery store with a different organizational structure?
Describe the relationship between â€œSystem 1â€ and â€œSystem 2â€ decision-making
processes.
Select the most beneficial of these alternatives.
Describe the relationship between planning and the other general functions of management
(organizing, controlling, and influencing). In your opinion, which of the four functions is most
important?
The first step in the delegation process is to assign specific duties to individuals. What do you
think are Meyerâ€™s primary duties, and to whom can he assign these duties? How would you
state these duties in operational terms such that the employees understand them?
What are the risks of managing a business like Heritage Auction Galleries?
What do you think about Meg Whitmanâ€™s decision to keep the PC business at HP? Would
you have made the same decision?
What changes do you envision for online retailing of consumer products in the next five years?
How did Chris Zane learn his current managerial style?
Explain the three major steps in the delegation process.
Based on what you read here, conduct a brief SWOT analysis of Antioch College.
Describe the management style at Zaneâ€™s Cycles using the concepts of responsibility,
authority, and delegation.
List three criteria that you would use to evaluate the planning for the new QBP warehouse.
Explain why you chose each criterion.
What are four organizational changes you would like to make at Ericson?
Describe Root Capitalâ€™s strategy for staffing their operations in Africa and Latin America.

What elements of the change process at Huntington described in the case could cause
organization members to experience stress? What might a change agent do to help alleviate this
stress? Explain.
List five questions that McCoy should ask herself in exploring how to best organize Avon.
Explain the international strategy of Root Capital.
Discuss an example of how you might use â€œfreezing, unfreezing, and refreezingâ€ in making
a specific organizational change.
Zaneâ€™s Cycles offers customers free lifetime service with the purchase of a bicycle. How
does this offer match the mission of Zaneâ€™s Cycles?
The second step in the delegation process involves granting authority to subordinates. How
would Meyer grant authority to others? How would he make sure that others accepted this new
authority?
Explain why it would be important for McCoy to ask each of the questions you listed.
Discuss the roles of responsibility, authority, and accountability in organizing the activities of
individuals at Toyota.
Does Boston Boxing and Fitness qualify as an entrepreneurial venture? Explain why or why not.
Does the organization chart reflect a division of labor emphasis? Explain.
List three alternatives Whole Foodsâ€™ management might consider in opening a store to serve
Detroiters before selecting the Midtown site.
If a company were to rely exclusively on social media as a recruiting tool, what challenges
would it encounter? What would you recommend to overcome these challenges?
What role should â€œorganizational stabilityâ€ play in the organizational change process?
What kind of internal and external environment currently exists for Antioch College?
Compare and contrast the three types of records used to record an organizationâ€™s human
resource inventory.
In general, what are the pros and cons of decentralization?

Compare and contrast the different strategy formulation tools. In your opinion, which tool is best
suited for large organizations? Explain.
Do you think Toyota managers in Japan will face any personal difficulties when delegating
responsibilities to Toyota managers in the U.S.?
Discuss grid OD as a technique for changing people in organizations.
How do you think the mission of Root Capital impacts the organizationâ€™s corporate culture?
Describe the four steps in the human resource management process. In your opinion, which step
is most important? Explain.
How does a food co-op differ from a regular grocery store?
Distinguish between responsibility and authority, and provide examples to support your
distinctions.
Which of the four strategy implementation skills do you think will be most important for the
company as it moves forward? Why?
The chapter discusses three classes of factors (people, structure, and technology) in determining
what should be changed. With P&Gâ€™s eStore, how have each of these factors been affected?
Describe the overall mission for the Save the Children organization.
Assume that you are the manager for Green Furniture, a company operating a number of
furniture stores operating throughout the U.S. Illustrate how the various types of
departmentalization might apply to this company. In other words, discuss the various advantages
and disadvantages of these types of departmentalization
Using information provided in the video, give examples of both programmed and non-
programmed decisions made by the leaders of Southwest Airlines.
What actions besides training must an organization such as Cisco take to make employees as
productive as possible?
Would you characterize Corbin Churchâ€™s sales method a standing plan or a single use plan?
Why?
How did Elm City Market gain ideas for the organizational structure of their co-op?
The third step in the delegation process entails making sure the subordinate accepts
responsibility for the delegated tasks. How would Meyer ensure that subordinates accept
responsibility?
What challenges do you envision for Buckley in attempting to maintain his current
organizational structure?
Explain the characteristics of effective objectives. Relying on these characteristics, provide an

example of an effective objective for a non-profit organization of your choice.
What is the relationship between bounded rationality and satisficing?
Are decisions made by Southwest primarily done so under conditions of risk, uncertainty, or
both? Explain your answer.
Describe the differences between opportunity identification and opportunity exploitation.
Discuss the roles of vertical and horizontal differentiation as they relate to organizational
structure. In your opinion, which of these concepts is most important for an effective
organizational structure?
At the end of the video, CEO Chris Klaus says that Kaneva employees can spend 20 percent of
their time on projects outside of the scope of the "roadmap." What does this mean? Do you
approve or disapprove?
Based on 3Mâ€™s departmentalization, do you think it has a very tall organization chart or a
very short organizational chart? Why?
For Samsungâ€™s management, is adding a solar and wind power unit a strategic management
issue? Explain
What is the essence of Boston Boxing and Fitness, in the eyes of owner Ed LaVache? What does
he think he is selling to his customers? Explain. What challenges and risks does he describe?
How would you characterize the scope of Whitmanâ€™s decision? What levels of management
were affected? Finally, should Whitman have used consensus in making her choice? Why or why
not?
Describe the different types of corporate entrepreneurship and provide examples.
Do the special advantages of having a restaurant on a truck outweigh the disadvantages for the
owners of Nom Nom? Explain.
Why would a company ever give any of its products away for free?
How do the Chapman brothers measure job performance?
How complicated would it be for a lower level administrator to spearhead an effort to find new
electronic applications for recordkeeping throughout Huntington and then actually implement the
change? Explain.
Perform an environmental analysis for the Washington Post Company. Which segment of the
environment is causing the companyâ€™s problem(s)?
How does owner David Stankunas feel about planning a business? What advice does he give for
would-be entrepreneurs?
Do you think that you would be successful in this job as manager at Toyota? Why?
Describe the primary steps involved in the rational decision making process.
Does it seem reasonable that Sherilyn McCoy and Andrea Jung before her were attempting to
organize Avon to make it more competitive? Explain.
What is the main challenge facing the human resource team at Save the Children?
How would you evaluate Steve Ivyâ€™s opportunity identification and opportunity exploitation?
How important is social media such as Facebook, Twitter, and YouTube in attracting qualified
candidates for jobs? Explain.
Assess Antioch Collegeâ€™s mission statement as it appears above. What is good about this
mission and what would you change?
How did HomestarRunner.com get started in the Internet cartoon business?
What challenges do you see with Real Mexâ€™s decentralization of operations? How can the
company overcome these challenges?
Describe the main components of social entrepreneurship, and describe how social
entrepreneurship differs from commercial entrepreneurship.

What do you think about Antioch Collegeâ€™s no-tuition strategy? Is it sustainable for its first
four years? What challenges do you see for the college?
Describe the three main types of authority that can exist within an organization.
Would you have the QBP president or an appointed planning executive do the planning for the
new warehouse? Why?
What information would management need to evaluate these three alternatives?
Based on this analysis, develop a mission statement for the company. Also, develop three
objectives that will help the company fulfill its mission.
How does Management by Objectives impact Kanevaâ€™s planning process? Describe why
Kaneva's daily meeting is a stand-up meeting.
Describe the role of culture within the Save the Children organization. How does this culture
impact the hiring process at Save the Children?
Finally, many obstacles could damage the effectiveness of Meyerâ€™s delegation efforts. List
the primary obstacles that Turgeon must overcome.
Give three factors in Samsungâ€™s internal environment that management should be assessing
in determining the company's organizational direction. Why are these factors important?
Do you feel that a product departmentalization structure is best for 3M? Why or why not?
Do you think that employees at the Huntington would tend to resist the efforts of this lower-lever
administrator more than a higher-level administrator? Why or why not?
Assess Corbin Churchâ€™s plan for selling Miche bags. How was changing his approach from
franchising to a direct sales home party approach a more effective strategic plan?
How would you characterize the mission and goals of Boston Boxing and Fitness?
Using the business portfolio matrix, categorize the new solar and wind power unit as a dog,
question mark, star or cash cow. From a strategic planning viewpoint, what do you recommend
that Samsung do as a result of this categorization? Why?
Describe how cultural differences between the U.S. and Japan may have played a role in
Toyotaâ€™s quality problems.

What was the strategy of Stankunas and the other owners of Nom Nom when they began the
venture? How has this strategy changed or evolved?
The Benjamin family had wage earnings of $185,000 in 2015. They received interest of $4,500
on corporate bonds and $1,500 on bonds issued by the state. Their dividend income was $500,
and they had a $1,000 long term capital gain on the sale of securities. They paid real estate taxes
of $1,450, state income tax of $3,
Describe the percent-of-sales method of financial forecasting.
Because P&G must continue to maintain strong relationships with traditional retailers, what
would you recommend P&G do to help retailers adjust to the change the eStore presents?
Using the rational decision making process, evaluate Whitmanâ€™s decision. In other words,
what was the existing problem, what were the possible alternatives, etc.?
Describe how HomestarRunner.com uses technology in their business. How do they incorporate
technological updates into their work?
Inky Inc. reported the following financial information in 2015. Operating income
(EBIT)............................................ $650,000 Interest ..................................................................
$430,000 Dividends from Printers Inc. not included in operating income (Inky owns 3% of
Printers)
What is a stock dividend, and how is it similar to a stock split?
Distinguish among the three components of a firm's overall planning process: the short-term
operating financial plan, the long-term operating financial plan, and the strategic plan.
Describe the meaning of the following trade credit terms: "2/10, net 30"; "4/20, net 60"; and
"3/15, net 45."
The common stock of the M&M Corporation currently sells for $60, and the dividend paid last
year was $2.25. Five years ago the firm paid $2.10 per share, and dividends are expected to grow
at the same annual rate in the future as they did over the past five years. a. What is the rate of
growth in the firm's dividends
Milford Inc. has the following summarized financial statements ($000): Income Statement
Revenue............................. $25,720 Cost/Expense.........................16, 718
EBIT.................................. $9,002 Interest (8%)........................... 1,420 EBT.........................
The income statements for Lowe's Companies, Inc. (LOW), spanning the period 2014-2016 (just
before the housing crash, so these are representative years) are as follows: a. Calculate the times
interest earned ratio for each of the years for which you have data. b. What is your assessment of
how the firm's ability to s
The Ballard Corporation is considering adding more debt to its capital structure and has asked
you to provide it with some guidance. After looking at future levels of Ballard's EBIT, you feel
very confident that in the future it will consistently be above the EBIT-EPS indifference point
calculated using Ballard's curre
In Finance in a Flat World: Capital Structures Around the World on page 510, we learned that
capital structures differ dramatically in different countries around the world. What are some
possible causes for the observed differences?
What are non-interest-bearing liabilities? Give some examples. Why are noninterest bearing
liabilities not included in the firm's capital structure?
Your Uncle Bob has no formal education in business or finance but has been investing in the
stock market for many years. At a recent family reunion, Uncle Bob told you that he liked to
invest in stocks with a very long history of paying cash dividends. Do you agree with this
philosophy? Why or why not?
What is EBIT-EPS analysis, and how is it used in making financing decisions?
What is financial flexibility, and why is it an important consideration when evaluating a

financing decision?
A firm is considering replacing its current production facility with a new robotics production
facility. As a result of this move, the firm's fixed costs will increase dramatically. To finance this
new project, the firm is considering either issuing common stock or issuing debt. Should the firm
consider these two decis
Describe the dividend distribution process, including the importance of the declaration date, date
of record, and ex-dividend date.
You are working as a consultant to the Lulu Athletic Clothing Company, and you have been
asked to compute the appropriate discount rate to use in the evaluation of the purchase of a new
warehouse facility. You have determined the market value of the firm's current capital structure
(which the firm considers to be its t
In Regardless of Your Major: Capital Structure Matters to You! on page 484, we learned about
the dangers of using a high proportion of debt financing faced by both General Motors (GM) and
Lehman Brothers. How could the failure of these firms possibly matter to you personally or to
your parents?
In Regardless of Your Major: Financial Planning Engages Everyone on page 554, we learned
that financial planning engages everyone throughout the organization. How do marketing and
accounting specialists contribute to the financial planning process?
Welcome to a Risky World on page 634, the need to engage in risk management was linked to
the day-to-day activities of firm employees from multiple functional areas, including operations,
marketing, and accounting. What are the two sources of risk identified in this discussion?
What is the significance of the notion that a firm's financing decisions are irrelevant? What does
this mean to the financial manager?
What is a firm's net working capital, and how is it related to the current ratio and the firm's
overall liquidity?
Waygone Industries is planning on issuing 30-year bonds that will be rated AA. Use Figure 14.3
to estimate the yield to maturity on the bond issue. What is the spread to Treasury for the debt
issue in basis points? In Figure 14.3
Describe how forward contracts can be used to hedge the risk of fluctuating commodity prices
for firms that must purchase these commodities in the future.
Beason Manufacturing forecasts its sales next year to be $6 million and expects to earn 5 percent
of that amount after taxes. The firm is currently in the process of projecting its financing needs
and has made the following assumptions (projections): â€¢ Current assets are equal to 20 percent
of sales, and fixed asset
How does the presence of financial distress costs, combined with the tax deductibility of interest
(and the resulting interest tax savings), affect a firm's weighted average cost of capital as the firm
increases its use of debt financing from no debt to higher and higher levels of debt?
What is financial leverage? What is meant by the use of the terms favorable and unfavorable
with regard to financial leverage?
How does a firm's financial structure differ from its capital structure?
Describe the nature and purpose of dark pools. Who runs dark pools for whose benefit?
The target capital structure for J&J Manufacturing is 50 percent common stock, 15 percent
preferred stock, and 35 percent debt. If the cost of common equity for the firm is 15 percent, the
cost of preferred stock is 9 percent, and the before-tax cost of debt is 5 percent, what is J&J's cost
of capital? The firm's tax r
The common stock for the Kingsford Corporation sells for $58 a share. Last year the firm paid a
$4 dividend, which is expected to continue to grow 4 percent per year into the indefinite future.
If the firm's tax rate is 22 percent, what is the firm's cost of common equity?
What are the two fundamental assumptions that are used to support the M&M capital structure
theory? Describe each in commonsense terms.
How does High Frequency Trading (HFT) work? How do regulators feel about HFT?
Cousin Harold runs a pharmacy but likes to dabble in common stock investing as a hobby. One
day last week he called you to find out what had happened to his portfolio because one of the
stocks he owns had announced the decision to repurchase 10 percent of the outstanding shares of
the company. How will this action affe
Credit Scoring on page 595, we learned about the determinants of your credit score. Describe the
five components of a credit score and the relative weight or importance of each.
Microchip Inc had the following profits and losses in the years indicated 2013.............................
$5,000,000 2014............................. $ 350,000 2015.......................... ($3,450,000) How much
federal tax will it eventually pay for 2013. The corporate rate schedule is the same for all three y
Firms regularly use insurance as a means of managing their risk exposure. What are some of the
types of risks that are typically transferred to insurance companies through the use of insurance
contracts?
A firm's dividend policy is generally characterized in terms of two attributes. Explain each.
Describe how each of the four financial ratios found in Table 15.3 is used to help managers make
financing decisions.
Finance for Life: Do You Need Life Insurance? on page 638 discussed factors involved in the
decision to purchase life insurance. What are some commonsense guidelines that can be used to
answer the question of whether you need life insurance?

How does a firm's use of short-term debt, as opposed to long-term debt, subject the firm to a
greater risk of illiquidity?
In the spring of 2016, the Caswell Publishing Company established a custom publishing business
for its business clients. These clients consisted principally of small- to medium-size companies in
Round Rock, Texas. However, the company's plans were disrupted when it landed a large
printing contract from Dell Inc., which
The forward rate for the Indian currency, the rupee, is not quoted in the New York exchange
market. If you were exposed to exchange risk in rupees, how could you cover your position?
What are financial distress costs, and how are they related to the firm's financing decisions?
What is a swap contract? How are swap contracts used to hedge interest rate risk?
International Investing on page 620, why is the diversification that international investing
provides to individual investors of value?
What is a forward contract, and how does it typically differ from an exchange traded futures
contract?
What are the limitations of the use of forward contracts to construct a hedge against price risk?
How does a futures exchange control for these limitations?
The Lindscomb family had the following income in 2015: Salaries: __________ Mark
______________ $63,500 ...........................Ashley ......................57,900 Interest on
investments: ...........................IBM bonds.............. $ 4,750 ........................... New York City bond
.... 1,400 .....
The Sharpe Corporation's projected sales for the first eight months of 2017 are as follows: Of
Sharpe's sales, 10 percent are for cash, another 60 percent are collected in the month following
the sale, and 30 percent are collected in the second month following the sale. November and
December sales for 2016 were $220,
Harrison Printing has projected its sales for the first eight months of 2017 as follows: Harrison
collects 20 percent of its sales in the month of the sale, 50 percent in the month following the
sale, and the remaining 30 percent two months following the sale. During November and
December of 2016, Harrison's sales wer
Harrison Electronics, Inc., operates a chain of electrical lighting and fixture distribution centers
throughout northern Arizona. The firm is anticipating expansion of its sales in the coming year as
a result of recent population growth trends. The firm's financial analyst has prepared pro forma
balance sheets that ref
Bates Fabricators, Inc., estimates that it invests $0.25 in assets for each $1 of new sales.
However, $0.05 in profits is produced by each $1 of additional sales, of which $0.01 can be
reinvested in the firm. If sales rise by $750,000 next year from their current level of $5 million
and the ratio of spontaneous liabili
Calculate all of the ratios discussed in the chapter for the Axtel Company of problem 5. Assume
Axtel had leasing costs of $7,267,000 and amortization of $1,416,000 in 20X1, and had
1,268,000 shares of stock outstanding that were valued at $28.75 per share at year end. The firm
also must make principal repayments of $
CL Marshall Liquors owns and operates a chain of beer and wine shops throughout the Dallas-
Fort Worth metroplex. As a result of the rapidly expanding population of the area, the firm
requires a growing amount of funds. Historically, it has reinvested earnings and borrowed using
short-term bank notes. Balance sheets, in
Define the term risk management.
Joan and Harry Leahy both had income in 2015. Harry made $72,500 in wages. Joan has an
incorporated small business that paid her a salary of $50,000. In addition, the business had
profits of $15,000, which were paid to the Leahys as dividends. They received $5,600 in interest
on savings and $350 in interest on a loan m
What is the risk-return tradeoff that arises when a firm manages its working capital?
Define exchange rate risk and political risk.
The current balance sheet Murphy Forklifts, Inc., is as follows: Murphy Forklifts, Inc. Balance
Sheet, December 31, 2016 ($ millions) Murphy had sales for the year ended December 31, 2016,
of $50 million. The firm follows a policy of paying all net earnings out to its common
stockholders in cash dividends. Thus, Mur
The Boston Brewery Corporation is a craft brewer of premium beers. The firm is planning on
issuing common stock at a market price of $13 a share. Last year the firm paid an annual
dividend of $1.45, and analysts expect the firm's future dividends will grow at an annual rate of 5
percent forever. What is Boston Brewery'
What are the markets and mechanics involved in engaging in simple arbitrage?
What does the term benchmarking mean with respect to making financing decisions?
Under the conditions of the M&M capital structure theory, the firm's financing decisions do not
have an impact on firm value. When this theory holds (i.e., is true), how do the firm's financing
decisions affect the firm's weighted average cost of capital? Describe how the cost of equity and
cost of debt behave as the f
Use Figure 15-9 to describe potential differences between leasing a piece of equipment with a
capital lease and purchasing the equipment using a bank loan. In figure 15-9
Finance for Life: Credit Scoring on page 595 described the credit scoring system used to
determine whether credit will be extended. What is a good credit score?
In Regardless of Your Major: Firms Almost Never Decrease Their Dividend on page 528, we
learned that firms try to sustain their dividend payout even during economic downturns. Use the
internet to determine what Royal Dutch Shell did with respect to its dividend in 2014 and 2015.
Why do you think Shell took this actio
What steps can a firm take to reduce foreign exchange rate risk? Indicate at least two different
techniques.
In the spring of last year, the management of the Silver Steel Company learned that the firm
would need to reevaluate the company's weighted average cost of capital following a significant
issue of debt. The firm now has financed 40 percent of its assets using debt and 60 percent using
equity. Calculate the firm's weig
Dimmick Skate Boarding Enterprises has declared a $3 dividend for its common stock. On the
day before the ex-dividend date, the firm's shares are trading for $40 a share. What do you expect
the price of Dimmick's shares to be on the day following the ex-dividend date? Why do you
expect the stock price to change?
How do purchasing-power parity, interest rate parity, and the International Fisher Effect explain
the relationships among the current spot rate, the future spot rate, and the forward rate?
What are agency costs, and how do they become a relevant consideration in determining a firm's
capital structure?
The income statements for Home Depot, Inc. (HD), spanning the period 2014-2016 (just before
the housing crash, so these are representative years) are as follows: a. Calculate the times interest
earned ratio for each of the years for which you have data. b. What is your assessment of how the
firm's ability to service
In the chapter introduction, we noted that computer company Dell is an industry leader in its
working-capital management practices. Describe how the firm came to have this reputation.
Kingwood Corporation has a stock price of $120 per share and is contemplating the payment of a
large, one-time cash dividend of $40 per share. The underlying motivation for the large payout
comes from management's belief that the firm has more cash than it can profitably reinvest and
that keeping the cash will adversel
Declan Ross wants to sell his business. The firm has no debt and earns an 8% return (ROE) on
equity of $150,000. The business can borrow at an after tax rate of 5%. A consultant has advised
that the business will be worth more if its financial statements show a higher return on equity
(ROE = net income / equity). Unfor
Forecasting a firm's future sales is the key element in developing a financial plan, yet forecasting
can be extremely difficult in some industries. If forecast accuracy is very poor, does this mean
that the financial planning process is not worthwhile? Explain your answer.
Why is a stable dividend payout policy popular from the viewpoint of the corporation? Is it also
popular with investors? Why?
The stock price of Perkiman Go Inc. is currently $40 a share. If the firm announces a 10 percent
stock dividend, what do you expect the ex-dividend stock price to be? What about a 20 percent
stock dividend?
A firm's cash flows are risky for a number of reasons. Identify and discuss five sources of risk or
volatility in firm cash flows.
What are interest tax savings, and how do they affect the relevance of a firm's financing
decisions?
In August 2015 the capital structure of the Emerson Electric Corporation (EMR) (measured in
book and market values) was as follows: ($ Millions) ________________ Book Value
_____________Market Value Short-term debt ....................... $ 2,553 ...................... $ 2,553
Long-term debt .......................
Do you think firms with stable income streams should use higher or lower levels of debt in their
capital structures? Why?
On July 1, 2016, the Southwest Forging Corporation arranged for a line of credit with the First
National Bank (FNB) of Dallas. The terms of the agreement call for a $100,000 maximum loan
with interest set at 1 percent over prime. In addition, the firm has to maintain a 20 percent
compensating balance in its demand depo
Explain what a firm's dividend policy is as if you were talking to your grandmother, who has had
no formal education in business.
The most recent balance sheet for the ADB Distribution Company is shown in the following
table. The company is about to embark on an advertising campaign that is expected to raise sales
from the current level of $5 million to $7 million by the end of next year. It is currently operating
at full capacity and will have t
Compare and contrast discretionary and spontaneous sources of short-term financing.
Your Aunt Mary recently called to ask you about a letter she had just received from her
stockbroker. She said that the letter notified her that one of the stocks she owns will be paying a
10 percent stock dividend, so her 100 shares will now be 110 shares. Because the stock was
trading at $20 a share before the stock d
Describe why capital structure is relevant to the value of the firm. Discuss the potential
violations of both of the basic assumptions that support the M&M capital structure theory.
In Regardless of Your Major: Conflicting Objectives Lead to Problems in Managing a Firm's

Working Capital on page 578, we learned that the objectives of a firm's sales force and the goal
of maximizing shareholder wealth are not always in sync when it comes to managing the firm's
working capital. Describe why the sales
Compute the cost of capital for each of the following sources of financing: a. A bond that has a
$1,000 par value (face value) and a contract or coupon interest rate of 11 percent. Interest
payments are $55.00 and are paid semiannually. The bond has a current market value of $1,000
and will mature in 20 years. The fir
Define a call option, and contrast it with a put option.
Home Depot, Inc. (HD), had 1,244 million shares of common stock outstanding in 2016 whereas
Lowe's Companies, Inc. (LOW), had 929 million shares outstanding. Given the 2016 earnings
levels found in Study Problems 15-9 and 15-10 and a 35 percent tax rate for both firms, what is
their break-even level of operating income
The Welmar Corporation operates membership warehouses that offer a wide variety of branded
and private-label products in no-frills, self-service warehouse facilities. In 2016, the company
paid total cash dividends of $265,029,000 and had net income of $1,282,725,000. a. What was
the firm's dividend payout ratio? b. I
What is the current U.S. tax policy with regard to the taxation of dividend income and capital
gains income resulting from a share repurchase? If the individual stockholder could choose
whether to receive a cash dividend or to have the firm engage in a share repurchase, which
should he or she prefer? Explain.
The tax implications of leasing versus buying a piece of equipment can sometimes favor leasing
and at other times favor buying. Explain.
A corporation desires to enter a particular foreign market. The direct foreign investment analysis
indicates that a direct investment in the plant in the foreign country is not profitable. What other
course of action can the company take to enter the foreign market? What are the important
considerations?
Compute six ratios that measure Tomloff Corporation's ability to earn profits. The company's
comparative income statement follows. The data for 2015 are given as needed. Did the
company's operating performance improve or deteriorate during 2017?
Grant Entertainment is a provider of cable, Internet, and on-demand video services. Grant
currently sends monthly bills to its customers via the postal service. Because of a concern for the
environment and recent increases in postal rates, company management is considering offering
an option to its customers for paperl
Lunar Entertainment is a provider of cable, Internet, and on-demand video services. Lunar
currently sends monthly bills to its customers via the postal service. Because of a concern for the
environment and recent increases in postal rates, Lunar management is considering offering an
option to its customers for paperles
Under what conditions is the firm's dividend policy not important to its investors?
Working in a Flat World on page 608, why do businesses operate internationally, and what
different types of businesses tend to operate in the international environment? Why are the
techniques and strategies available to these firms different? Why is it important for many
businesses to have an international presence?
In its 2014/2015 Sustainable Business Report and its annual report, NIKE, Inc., describes several
sustainability goals and commitments it has made. In the following list, categorize each goal (or
measurement) as to whether it is oriented toward the people, planet, or profit component of the
triple bottom line.
1. Pressure to become more sustainable can usually be categorized into several reasons,
including cost reduction and regulatory compliance. Think of an organization you're familiar
with. Which reason(s) do you think is (are) strongest in this organization? Which reason do you
think is least relevant to this organizatio
The 2017 and 2016 balance sheets of Gibson Corporation follow. The 2017 income statement is
also provided. Gibson had no noncash investing and financing transactions during 2017. During
the year, the company sold equipment for $15,200, which had originally cost $12,800 and had a
book value of $11,300. The company did n
This case is a continuation of the Caesars Entertainment Corporation serial case that began in
Chapter 1. Refer to the introductory story in Chapter 1 (see page 43) for additional background.
(The components of the Caesars serial case can be completed in any order.) The statements of
operations (income statements) and
Financial statement data of Backroad Travel magazine include the following information (dollars
in thousands): Cash ......................................................................................................... $ 25,000
Accounts receivable, net ..............................................................
Kelleher Crafts has provided the following data: Requirement Compute the following ratios for
the current year for Kelleher Crafts: a. Current ratio b. Acid-test ratio c. Inventory turnover d.
Days' sales in average receivables (assume all sales are on credit)
McKay Frames has asked you to determine whether the company's ability to pay current
liabilities and total liabilities improved or deteriorated during 2017. To answer that question,
compute these ratios for 2017 and 2016, using the following data: a. Current ratio b. Acid-test
ratio c. Debt ratio d. Times-interest-
Use the Cartwright's Data Set when making the following calculations: Cartwright's, a home-
improvement store chain, reported these summarized figures: a. Compute earnings per share
(EPS) for Cartwright's. The number of shares outstanding was 720,000. b. Compute Cartwright's
price/earnings ratio. The price of a share
Compare Martinez and Rojo by converting their income statements to common size. Which
company earns more net income? Which company's net income is a higher percentage of its net
sales?
Using the data given in E13-25B, prepare the statement of cash flows for Thompson Corporation
for the year. The company uses the indirect method for operating activities.
Use the data given in S13-5 for the McCabe Company to compute the following financing cash
flows: a. New borrowing or payment of long-term notes payable. McCabe Company had only
one long-term note payable transaction during the year (this long-term note payable is the only
long-term liability that the company has). b
Compute the dollar amount of change and the percentage of change in Crocker News Group's
working capital each year during 2016 and 2017. Is this trend favorable or unfavorable?
(The components of the Caesars serial case can be completed in any order.) Following are the
consolidated statements of cash fl
Relaxation Valley Luxury Resorts has been evaluating how it might expand its sustainability
efforts in its hotels. In any given month, an average of 109,500 room days are available in total
(this total capacity figure is roughly estimated by taking the total number of hotel rooms in the
hotels owned by Relaxation Valle
Prepare a comparative common-size income statement for Wolf Corporation. To an investor,

how does 2017 compare with 2016? Explain your reasoning.
Veronica is an intern in the Accounting Department at Kessler Industries, a manufacturer of

precision medical instruments. She is anxious to make a good impression because she wants to
be offered a full-time position at this company when she has completed her internship. One of
the tasks that Veronica is given is to h
Bricker Frames has asked you to determine whether the company's ability to pay current
liabilities and total liabilities improved or deteriorated during 2017. To answer this question,
compute these ratios for 2017 and 2016, using the following data: a. Current ratio b. Acid-test
ratio c. Debt ratio d. Times-interes
FirstEnergy is an electric utility serving markets in the Midwest and Mid-Atlantic regions. It
operates an infrastructure of nearly 269,000 miles of distribution lines stretching from the Ohio-
Indiana border to the New Jersey shore. FirstEnergy issued a sustainability report in 2016
entitled "Sustainability report 201
Prepare the income statement of Centerpiece Arrangements for the year ended December 31,
2018. Centerpiece Arrangements has just completed operations for the year ended December 31,
2018. This is the third year of operations for the company. The following data have been
assembled for the business:
Use the Cartwright's Data Set to compute the following: Cartwright's, a home-improvement store
chain, reported these summarized figures: a. The rate of inventory turnover for 2017. b. Days'
sales in average receivables during 2017. Assume all sales are on credit.
Whitman Plastics is a manufacturer that takes in post-consumer plastics (e.g., empty milk jugs)
and recycles those plastics into a "plastic lumber" that can be used to build furniture, decking,
and a variety of other items. Because Whitman has a strong focus on sustainability, the company
managers try, whenever possibl
Bradley Group reported the following revenues and net income amounts: a. Show Bradley
Group's trend percentages for revenues and net income. Use 2014 as the base year and round to
the nearest percent. b. Which measure increased faster during 2015-2017?
(The components of the Caesars serial case can be completed in any order.) In 2016, Caesars
Entertainment Corporation was recog
Use the Cartwright's Data Set to compute these profitability measures for 2017: Cartwright's, a
home-improvement store chain, reported these summarized figures: a. Gross profit percentage b.
Operating income percentage c. Rate of return on net sales d. Rate of return on total assets e.
Rate of return on common st
Compute the following cash flows for High Seas Nautical Company for the past year, assuming
the company uses the direct method: 1. The beginning balance of Retained Earning was
$137,000, while the end of the year balance of Retained Earnings was $175,000. Net income for
the year was $61,000. No dividends payable were
For each of the following situations, identify whether the activity is an operating, investing, or
financing activity and compute the cash provided or used by the activity. The indirect method is
used.
Miracle Meadow Luxury Resorts has been evaluating how it might expand its sustainability
efforts in its hotels. In any given month, an average of 109,500 room days are available in total
(this total capacity figure is roughly estimated by taking the total number of hotel rooms in the
hotels owned by Miracle Meadow and
Financial statement data of Pacific Traveler magazine include the following items (dollars in
thousands): Cash .................................................................................................................... $
24,500 Accounts receivable, net ........................................................

Smigel Industries manufactures plastic bottles for the food industry. On average, Smigel pays
$73 per ton for its plastics. Smigel's waste-disposal company has increased its wastedisposal
charge to $56 per ton for solid and inert waste. The company generates a total of 500 tons of
waste per month. Smigel's managers ha
A living roof is a roof of a building that is completely covered with grass or other vegetation
planted over a waterproof layer (to protect the building interior). The Ford Motor Company's
Rouge Plant in Dearborn, Michigan, is an example of a successful implementation of a living
roof. There are several benefits assoc
Evaluate the common stock of McKnight State Bank as an investment. Specifically, use the three
stock ratios to determine whether the common stock has increased or decreased in attractiveness
during the past year.
McCormick Optical Company reported the following amounts on its balance sheet at December
31: Cash and receivables ................................................................................... $ 49,980 Inventory
....................................................................................................
Block Department Stores' chief executive officer (CEO) has asked you to compare the company's
profit performance and financial position with the average for the industry. The CEO has given
you the company's income statement and balance sheet, as well as the industry average data for
retailers. Requirements 1. Prepare
Thompson Corporation has the following activities for the past year: Requirement Prepare the
operating activities section of Thompson Corporation's statement of cash flows for the year
ended December 31, using the indirect method for operating cash flows.
Freedom Corporation reported these figures: Freedom Corporation has 2,500,000 shares of
common stock outstanding. Its stock has traded recently at $32.90 per share. You would like to
gain a better understanding of Freedom Corporation's financial position. Assume all sales are on
credit. Calculate the following ratios
The 2017 and 2016 balance sheets of Rabb Corporation follow. The 2017 income statement is
also provided. Rabb had no noncash investing and financing transactions during 2017. During
the year, the company sold equipment for $15,100, which had originally cost $13,500 and had a
book value of $10,500. The company did not i
Prepare a statement of cash flows using the indirect method. The income statement for 2017 and
the balance sheets for 2017 and 2016 are presented for Harding Industries, Inc. Additional
information follows: a. Sold plant asset for $4,300. The original cost of this plant asset was
$10,300 and it had $10,000 of accumul
Ponderosa Crafts has provided the following data: Requirement Compute the following ratios for
the current year for Ponderosa Crafts: a. Current ratio b. Acid-test ratio c. Inventory turnover d.
Days' sales in average receivables (assume all sales are on credit)
Shaker Plastics manufactures custom park furniture and signage from recycled plastics
(primarily shredded milk jugs). Many of the company's customers are municipalities that are
required by law to purchase goods that meet certain recycled-content guidelines. (Recycled
content can include post-consumer waste materials,
Prepare a horizontal analysis of the following comparative income statement of The Slate Group.
Why did net income increase by a higher percentage than net sales revenue during 2017?
Prepare a horizontal analysis of the following comparative income statement of The Ruby
Group.
A recent statement of cash flows for Oleg Company reported the following information: Based
on the information presented in the statement of cash flows for Oleg Company, determine
whether the following accounts increased or decreased during the period: Accounts Receivable,
Inventory, Other Current Assets, Accounts Pay
Prepare the income statement of Centerpiece Arrangements for the year ended December 31,
2018. Centerpiece Arrangements has just completed operations for the year ended December 31,
2018. This is the third year of operations for the company. The following data have been
assembled for the business:
Each of the following scenarios describes a sustainability-related cost item for organizations. For
each scenario, identify which function of the value chain that cost would represent (R&D,
design, purchasing/producing, marketing, distributing, or customer service). Note: The
companies and products used in this exercis
Ambrose Department Stores' chief executive officer (CEO) has asked you to compare the
company's profit performance and financial position with the average for the industry. The CEO
has given you the company's income statement and balance sheet, as well as the industry average
data for retailers. Requirements 1. Prepa
Graphic Company, Inc., has the following comparative balance sheet as of March 31, 2017.
Selected transaction data for the year ended March 31, 2017, include the following: a. Net
income, $76,800 b. Paid long-term note payable with cash, $59,600 c. Cash payments to
employees, $42,700 d. Loss on sale of land, $9,20
Lowell Plastics manufactures custom park furniture and signage from recycled plastics
(primarily shredded milk jugs). Many of the company's customers are municipalities that are
required by law to purchase goods that meet certain recycled-content guidelines. (Recycled
content can include post-consumer waste materials,
Sorrento Industries manufactures plastic bottles for the food industry. On average, Sorrento pays
$71 per ton for its plastics. Sorrento's waste-disposal company has increased its waste-disposal
charge to $56 per ton for solid and inert waste. Sorrento generates a total of 500 tons of waste per
month. The company's ma
Assume that you are purchasing an investment and have decided to invest in a company in the
smartphone business. You have narrowed the choice to Best Digital Electronics or Zone Network
Electronics and have assembled the following data. Selected income statement data for the
current year follows: Selected balance she
Williams Digital Services, Inc., has provided the following data from the company's records for
the year just ended December 31: a. Collection of
interest ............................................................................................. $ 5,200 b. Cash
sales ...............................................
Prepare the statement of cash flows using the indirect method. The income statement for 2017
and the balance sheets for 2017 and 2016 are presented for Hall Industries. Additional
information follows: a. Sold plant asset for $4,200. The original cost of this plant asset was
$10,400 and it had $9,700 of accumulated de
Santana Industries manufactures a variety of custom products. The company has traditionally
used a plantwide manufacturing overhead rate based on machine hours to allocate manufacturing
overhead to its products. The company estimates that it will incur $1,005,000 in total
manufacturing overhead costs in the upcoming ye
Comparative financial statement data of Hollingsworth, Inc., follow: 1. Market price of

Hollingsworth's common stock: $50.60 at December 31, 2017, and $33.49 at December 31, 2016
2. Common shares outstanding: 12,000,000 during 2017 and 12,000,000 during 2016 3. All sales
are credit sales Requirements 1. Compute th
Carolina Designs has requested that you perform a vertical analysis of its balance sheet.
Shabnam Interiors began the year with cash of $55,000. During the year, Shabnam Interiors
earned service revenue of $406,000. Cash collections for the year were $405,000. Expenses for
the year were $375,000, with $360,000 of that total paid in cash. The company also used cash to
purchase equipment for $85,000 and to pa
In its 2015 Corporate Social Responsibility Report, the Hershey Company details the results
from the steps it has taken to embed a sustainable culture throughout its business operations. In
the following list from Hershey's CSR report, categorize each result as to whether it is oriented
toward the economic, environment
Prepare a comparative common-size income statement for Jubilee Corporation. To an investor,

how does 2017 compare with 2016? Explain your reasoning.
Comparative financial statement data of Tennyson, Inc., follow: 1. Market price of Tennyson's
common stock: $43.51 at December 31, 2017, and $31.36 at December 31, 2016 2. Common
shares outstanding: 11,000,000 during 2017 and 11,000,000 during 2016 3. All sales are credit
sales Requirements 1. Compute the followin
Daniel Corporation uses the indirect method to prepare its statement of cash flows. Data related
to cash activities for last year are as follows: Net
income .................................................................................. $ 92,900 Dividends paid
(cash) ...............................................
Compute trend percentages for Barb Sayre Realtors' net revenue and net income for the
following five-year period, using 2013 as the base year. Which grew faster during the period, net
revenue or net income?
Compute trend percentages for Elsie Snyder Realtors' net revenue and net income for the
following five-year period, using 2013 as the base year. Which grew faster during the period, net
revenue or net income?
Thornton Corporation reported these figures: Thornton Corporation has 3,125,000 shares of
common stock outstanding. Its stock has traded recently at $31.20 per share. You would like to
gain a better understanding of Thornton Corporation's financial position. Assume all sales are on
credit. Calculate the following rati
In its 2014/2015 Sustainable Business Report and its annual report, NIKE, Inc., describes several
sustainability goals and commitments it has made. In the following list, categorize each goal (or
measurement) as to whether it is oriented toward the people, planet, or profit component of the
triple bottom line. Goal or
Krugman Garage Doors manufactures a premium garage door. Currently, the price and cost data
associated with the premium garage door are as follows: Average selling price per premium
garage door ........................................ $ 1,000 Average variable manufacturing cost per
door ..............................
In its 2015 Citizenship (CSR) Report, Microsoft Corporation details the results from the steps it
has taken to embed a sustainable culture throughout its business operations. In the following list
from Microsoft's CSR report, categorize each result as to whether it is oriented toward the
economic, environmental, or soc
Parkins Corporation reported the following on its comparative income statement: Perform a
horizontal analysis of revenues and gross profit-both in dollar amounts and in percentages-for
2017 and 2016.
Pandora Internet Radio by Pandora Media is a streaming music service. Its free advertising-
supported radio service was first launched in 2005. Pandora users streamed 20.03 billion hours of
Internet radio during 2014. In December 2014, there were 81.5Â®million active users of
Pandora, making it the largest streaming mus
Shaffer Industries manufactures a variety of custom widgets. The company has traditionally used
a plantwide manufacturing overhead rate based on machine hours to allocate manufacturing
overhead to its products. The company estimates that it will incur $1,080,000 in total
manufacturing overhead costs in the upcoming yea
Huggins Digital Services, Inc., has provided the following data from the company's records for
the year just ended December 31: a. Collection of
interest ............................................................................................. $ 5,700 b. Cash
sales ................................................
Killian Garage Doors manufactures a premium garage door. Currently, the price and cost data
associated with the premium garage door are as follows: Average selling price per premium
garage door ......................................... $ 1,800 Average variable manufacturing cost per
door .............................
Mercado Industries is evaluating investing in solar panels to provide some of the electrical needs
of its main office building in Boulder, Colorado. The solar panel project would cost $650,000
and would provide cost savings in its utility bills of $50,000 per year. It is anticipated that the
solar panels would have a l
Compute the dollar amount of change and the percentage of change in Gambol News Group's
working capital each year during 2016 and 2017. Is this trend favorable or unfavorable?
Jaren Industries is evaluating investing in solar panels to provide some of the electrical needs of
its main office building in Phoenix, Arizona. The solar panel project would cost $500,000 and
would provide cost savings in its utility bills of $70,000 per year. It is anticipated that the solar
panels would have a life
McCabe Company reported the following financial statements for 2016 and 2017: Compute the
following investing cash flows: a. Purchases of plant assets (all were for cash). There were no
sales of plant assets. b. Proceeds from the sale of investments. There were no purchases of
investments.
Refer to the Cartwright's Data Set. Cartwright's, a home-improvement store chain, reported these
summarized figures: a. Compute Cartwright's current ratio at December 31, 2017 and 2016. b.
Did Cartwright's current ratio improve, deteriorate, or hold steady during 2017?
Marshall Sign Company, Inc., has the following comparative balance sheet as of March 31,
2017. Selected transaction data for the year ended March 31, 2017, include the following: a. Net
income ....................................................................................................... $ 77,100 b. Paid lon
Using the data for E13-28B, prepare the statement of cash flows using the direct method.
Net sales revenue, net income, and common stockholders' equity for Connor Vision Corporation,
a manufacturer of contact lenses, follow for a four-year period. Requirements 1. Compute trend
percentages for each item for 2014 through 2017. Use 2014 as the base year. 2. Compute the rate
of return on common stockholders
Comfort Spas provides the following data for the year just ended December 31. Requirement
Prepare the operating activities section of Comfort Spas' statement of cash flows for the year
ended December 31 using the direct method for operating cash flows.
A living roof is a roof of a building that is completely covered with grass or other vegetation
planted over a waterproof layer (to protect the building interior). The Ford Motor Company's
Rouge Plant in Dearborn, Michigan, is an example of a successful implementation of a living
roof. There are several benefits assoc
The Dragon Corporation is preparing its statement of cash flows for the past year just ended on
December 31. The controller has gathered the following information about the past year.
Requirement Prepare a statement of cash flows for the past year using the indirect method.
Riley Designs has requested that you perform a vertical analysis of its balance sheet.
Compute six ratios that measure Spenser Corporation's ability to earn profits. The company's
comparative income statement follows. The data for 2015 are given as needed. Did the
company's operating performance improve or deteriorate during 2017?
Wolfe Containers currently uses a recycled plastic to make bottles for the food industry. Current
bottle production information: The cost and time standards per batch of 10,000 bottles are as
follows: Plastic 220 kilograms at $6.00 per kg Direct labor 4.0 hours at $20.00 per hour The
variable manufacturing overhea
Westerville Containers currently uses a recycled plastic to make bottles for the food industry.
Current bottle production information: The cost and time standards per batch of 10,000 bottles
are as follows: Plastic 300 kilograms at $11.00 per kg Direct labor 2.0 hours at $20.00 per hour
The variable manufacturing
Over the past several years, decommissioned U.S. warships have been turned into artificial reefs
in the ocean by towing them out to sea and sinking them. The thinking was that sinking the ship
would conveniently dispose of it while providing an artificial reef environment for aquatic life.
In reality, some of the sunke
Net sales revenue, net income, and common stockholders' equity for Vallen Optical Corporation,
a manufacturer of contact lenses, follow for a four-year period. Requirements 1. Compute trend
percentages for each item for 2014 through 2017. Use 2014 as the base year. 2. Compute the rate
of return on common stockholder
Over the past several years, decommissioned U.S. warships have been turned into artificial reefs
in the ocean by towing them out to sea and sinking them. The thinking was that sinking the ship
would conveniently dispose of it while providing an artificial reef environment for aquatic life.
In reality, some of the sunke
Evaluate the common stock of Mumford State Bank as an investment. Specifically, use the three
stock ratios to determine whether the common stock has increased or decreased in attractiveness
during the past year.
The Coca-Cola Company and PepsiCo, Inc., are fierce competitors in the beverage and snack
markets. A perennial question among consumers is "Coke or Pepsi"? In this case, we will be
looking at the financial positions of both companies to answer the question of which company is
in a stronger financial position, Coke or P
Liller Beverages manufactures its own soda pop bottles. The bottles are made from polyethylene
terephthalate (PET), a lightweight yet strong plastic. The company uses as much PET recycled
resin pellets in its bottles as it can, both because using recycled PET helps the company to meet
its sustainability goals and becau
Refer to the Cartwright's Data Set. Cartwright's, a home-improvement store chain, reported these
summarized figures: a. Compute the debt ratio at December 31, 2017. b. Is Cartwright's ability to
pay its liabilities strong or weak? Explain your reasoning.
Assume that you are purchasing an investment and have decided to invest in a company in the
smartphone business. You have narrowed the choice to Digital Plus Electronics or Speed
Network Electronics and have assembled the following data. Selected income statement data for
the current year follow: Selected balance she
Water world Company leased equipment from Costner Company. The lease term is 4 years and
requires equal rental payments of $43,019 at the beginning of each year. The equipment has a
fair value at the inception of the lease of $150,000, an estimated useful life of 4 years, and no
salvage value. Water world pays all exec
Danico Beverages manufactures its own soda pop bottles. The bottles are made from
polyethylene terephthalate (PET), a lightweight yet strong plastic. The company uses as much
PET recycled resin pellets in its bottles as it can, both because using recycled PET helps Danico
to meet its sustainability goals and because re
Sears Holding Corporation (SHLD) announced in April 2016 that it would be closing 68 Kmart
and 10 Sears stores during the second half of 2016. The stores it is closing have not been
profitable for Sears, and it is looking to improve profitability with the closures. Similarly, Wal-
Mart Stores, Inc. (WMT) announced in J
Webber Plastics is a manufacturer that takes in post-consumer plastics (e.g., empty milk jugs)
and recycles those plastics into a variety of building materials. Because the company has a strong
focus on sustainability, the company managers try, whenever possible, to use recycled materials
and to invest in sustainable p
Ashley Stamper opened a medical practice. During July, the first month of operation, the
business, titled Ashley Stamper, MD, experienced the following events: Jul. 6 Received a
contribution of $68,000 from Stamper and opened a bank account in the name of A. Stamper,
MD. The corporation issued common stock to Stamper
What are â€œinitial direct costsâ€ and how are they accounted for?
Comparison of Different Types of Accounting by Lessee and Lessor Part 1 Capital leases and
operating leases are the two classifications of leases described in FASB pronouncements from
the standpoint of the lessee. (a) Describe how a capital lease would be accounted for by the
lessee both at the inception of the lease a
On January 1, 2011, Cage Company contracts to lease equipment for 5 years, agreeing to make a
payment of $137,899 (including the executory costs of $6,000) at the beginning of each year,
starting January 1, 2011. The taxes, the insurance, and the maintenance, estimated at $6,000 a
year, are the obligations of the lesse
Ludwick Steel Company as lessee signed a lease agreement for equipment for 5 years, beginning
December 31, 2010. Annual rental payments of $40,000 are to be made at the beginning of each
lease year (December 31). The taxes, insurance, and the maintenance costs are the obligation of
the lessee. The interest rate used by
(Balance Sheet and Income Statement Disclosureâ€”Lessee) The following facts pertain to a
non-cancelable lease agreement between Alschuler Leasing Company and McKee Electronics, a
lessee, for a computer system. Inception date October 1, 2010 Lease term 6 years Economic life
of leased equipment 6 year
Geiberger Corporation manufactures replicators. On January 1, 2011, it leased to Altheas

Company a replicator that had cost $110,000 to manufacture. The lease agreement covers the 5-
year useful life of the replicator and requires 5 equal annual rentals of $40,800 payable each
January 1, beginning January 1, 2011. An in
As discussed in the chapter, U.S. GAAP accounting for leases allows companies to use
offâ€“balance-sheet financing for the purchase of operating assets. International accounting
standards are similar to U.S. GAAP in that under these rules, companies can keep leased assets
and obligations off their balance sheets. Howev
On January 1, 2011, Secada Co. leased a building to Ryker Inc. The relevant information related
to the lease is as follows. 1. The lease arrangement is for 10 years. 2. The leased building cost
$3,600,000 and was purchased for cash on January 1, 2011. 3. The building is depreciated on a
straight-line basis. Its estimat
What is the purpose of the statement of cash flows? What information does it provide?
(Pension Terminology and Theory) Many business organizations have been concerned with
providing for the retirement of employees since the late 1800s. During recent decades a marked
increase in this concern has resulted in the establishment of private pension plans in most large
companies and in many medium- and small-s
Shapiro Inc. was incorporated in 2010 to operate as a computer software service firm with an
accounting fiscal year ending August 31. Shapiroâ€™s primary product is a sophisticated online
inventory-control system; its customers pay a fixed fee plus a usage charge for using the system.
Shapiro has leased a large, Alpha-
What are the major lessor groups in the United States? What advantage does a captive have in a
leasing arrangement?
Sylvan Inc. entered into a non-cancelable lease arrangement with Breton Leasing Corporation for
a certain machine. Bretonâ€™s primary business is leasing; it is not a manufacturer or dealer.
Sylvan will lease the machine for a period of 3 years, which is 50% of the machineâ€™s
economic life. Breton will take possession
Use the information for IBM from BE21-6. Assume the direct-financing lease was recorded at a
present value of $150,000. Prepare IBMâ€™s December 31, 2011, entry to record interest.
Assume that on January 1, 2011, Elmerâ€™s Restaurants sells a computer system to Liquidity
Finance Co. for $510,000 and immediately leases the computer system back. The relevant
information is as follows. 1. The computer was carried on Elmerâ€™s books at a value of
$450,000. 2. The term of the non-cancelable lease is 1
Assume the same data as in P21-10 with National Airlines Co. having an incremental borrowing
rate of 10%. (Round all numbers to the nearest dollar.) (a) Discuss the nature of this lease in
relation to the lessee, and compute the amount of the initial obligation under capital leases. (b)
Prepare a 10-year lease amortiz
Where can authoritative iGAAP guidance related to leases be found?
Explain the distinction between a direct-financing lease and a sales-type lease for a lessor.
Briefly describe some of the similarities and differences between U.S. GAAP and iGAAP with
respect to the accounting for leases.
(Pension Terminology) The following items appear on Brueggen Companyâ€™s financial

statements. 1. Under the caption Assets: Pension asset/liability 2. Under the caption Liabilities:
Pension asset/liability 3. Under the caption Stockholdersâ€™ Equity: Prior service cost as a
component of Accumulated Other Comprehensive
Pension Worksheet) The following data relate to the operation of Kramer Co.â€™s pension plan
in 2011. The pension worksheet for 2010 is provided in P20-10. Service cost $59,000 Actual
return on plan assets 32,000 Amortization of prior service cost 28,000 Annual contributions
51,000 Benefits paid ret

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Explain the characteristics of effective objectives. Relying on these characteristics, provide an

What is the relationship between bounded rationality and satisficing?

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Describe the differences between opportunity identification and opportunity exploitation.

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Describe the different types of corporate entrepreneurship and provide examples.

How do the Chapman brothers measure job performance?

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How did HomestarRunner.com get started in the Internet cartoon business?

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What information would management need to evaluate these three alternatives?

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Describe the percent-of-sales method of financial forecasting.

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What is a stock dividend, and how is it similar to a stock split?

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What is EBIT-EPS analysis, and how is it used in making financing decisions?

What is financial flexibility, and why is it an important consideration when evaluating a

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Define the term risk management.

Define exchange rate risk and political risk.

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Compare and contrast discretionary and spontaneous sources of short-term financing.

In Regardless of Your Major: Conflicting Objectives Lead to Problems in Managing a Firm's