Fundamentals Of Financial Accounting
6th Edition
ISBN: 9781259864230
Author: PHILLIPS, Fred, Libby, Robert, Patricia A.
Publisher: Mcgraw-hill Education,
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Chapter 12, Problem 6SDC
To determine
To explain: The action recommended to Company Q and the reasons for it.
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Ethical Issue: Moss Exports is having a bad year. Net Income is only $60,000. Also, two important overseas customers are falling behind in their payments to Moss, and Moss's Accounts Receivable are ballooning (these two customers owe Moss $80,000 combined). The company desperately needs a loan. The Moss Exports Board of Directors is considering ways to put the best face on the company's financial statements. Moss's bank closely examines cash flow from operating activities. Daniel Peavey, Moss's Controller, suggests reclassifying the receivables from the two overseas customers as long-term assets. He explains to the Board that removing the $80,000 increase in Accounts Receivable from current assets will increase the net cash provided by operations.This approach may help get Moss the loan.
1. Using only the amounts given, compute net cash provided by operations, both without and with the reclassification of the receivables.
Which reporting makes Moss look better?
In showing your math,…
Bansi Breken is a financial institution that
provides loans to businesses. It rejects an
iron ore company's request for a loan
after it reviews the value of the
company's assets, liabilities, and owners'
equity and finds them to be
unsatisfactory. In this scenario, Bansi
Breken most likely analyzed the
company's _____ to assess its financial
condition. Group of answer choices
balance sheet
operating budget
income statement
statement of cash flows
Recently the M&M Company has been having problems. As a result, its financial situation has deteriorated. M&M approached the First National Bank for a badly needed loan, but the loan officer insisted that the current ratio (now 0.5) be improved to at least 0.8 before the bank would even consider granting the credit. Which of the following actions would do the most to improve the ratio in the short run? *
a. Using some cash to pay off some current liabilities
b. Collecting some of the current accounts receivable.
c. Paying off some long-term debt.
d. Purchasing additional inventory on credit (accounts payable)
Chapter 12 Solutions
Fundamentals Of Financial Accounting
Ch. 12 - Compare the purposes of the income statement, the...Ch. 12 - Prob. 2QCh. 12 - Prob. 3QCh. 12 - What are the major categories of business...Ch. 12 - Prob. 5QCh. 12 - Describe the types of items used to compute cash...Ch. 12 - Under the indirect method, depreciation expense is...Ch. 12 - Prob. 8QCh. 12 - Explain why a 50,000 increase in inventory during...Ch. 12 - Prob. 10Q
Ch. 12 - As a junior analyst, you are evaluating the...Ch. 12 - Prob. 12QCh. 12 - Prob. 13QCh. 12 - Prob. 14QCh. 12 - (Supplement 12A) How is the sale of equipment...Ch. 12 - Prob. 1MCCh. 12 - Prob. 2MCCh. 12 - Prob. 3MCCh. 12 - Prob. 4MCCh. 12 - Which of the following would not appear in the...Ch. 12 - Prob. 6MCCh. 12 - Prob. 7MCCh. 12 - Prob. 8MCCh. 12 - The total change in cash as shown near the bottom...Ch. 12 - Prob. 10MCCh. 12 - Prob. 1MECh. 12 - Matching Items Reported to Cash Flow Statement...Ch. 12 - Determining the Effects of Account Changes on Cash...Ch. 12 - Computing Cash Flows from Operating Activities...Ch. 12 - Prob. 5MECh. 12 - Computing Cash Flows from Investing Activities...Ch. 12 - Computing Cash Flows from Financing Activities...Ch. 12 - Computing Cash Flows Under IFRS Using the data...Ch. 12 - Prob. 9MECh. 12 - Interpreting Cash Flows from Operating, Investing,...Ch. 12 - Matching Items Reported to Cash Flow Statement...Ch. 12 - Computing Cash Flows from Operating Activities...Ch. 12 - Prob. 13MECh. 12 - Matching items Reported to Cash Flow Statement...Ch. 12 - Prob. 2ECh. 12 - Prob. 3ECh. 12 - Prob. 4ECh. 12 - Prob. 5ECh. 12 - Prob. 6ECh. 12 - Prob. 7ECh. 12 - Prob. 8ECh. 12 - Reporting and Interpreting Cash Flows from...Ch. 12 - Prob. 10ECh. 12 - Prob. 11ECh. 12 - Inferring Balance Sheet Changes from the Cash Flow...Ch. 12 - Prob. 13ECh. 12 - Prob. 14ECh. 12 - Prob. 15ECh. 12 - Prob. 16ECh. 12 - Prob. 17ECh. 12 - Prob. 18ECh. 12 - Prob. 19ECh. 12 - Prob. 20ECh. 12 - Prob. 21ECh. 12 - Prob. 22ECh. 12 - (Supplement 12B) Preparing a Statement of Cash...Ch. 12 - Determining Cash Flow Statement Effects of...Ch. 12 - Prob. 2CPCh. 12 - Prob. 3CPCh. 12 - Preparing and Interpreting a Statement of Cash...Ch. 12 - Prob. 5CPCh. 12 - Prob. 6CPCh. 12 - (Supplement 12A) Preparing and Interpreting a...Ch. 12 - Prob. 1PACh. 12 - Prob. 2PACh. 12 - Prob. 3PACh. 12 - Preparing and Interpreting a Statement of Cash...Ch. 12 - Computing Cash Flows from Operating Activities...Ch. 12 - Prob. 6PACh. 12 - (Supplement 12A) Preparing and Interpreting a...Ch. 12 - Prob. 1PBCh. 12 - Prob. 2PBCh. 12 - Prob. 3PBCh. 12 - Preparing and Interpreting a Statement of Cash...Ch. 12 - Prob. 5PBCh. 12 - Prob. 6PBCh. 12 - Prob. 1SDCCh. 12 - Prob. 2SDCCh. 12 - Prob. 6SDCCh. 12 - Prob. 7SDCCh. 12 - Prob. 8SDCCh. 12 - Prob. 9SDCCh. 12 - Prob. 1CC
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- Glencoe First National Bank operated for years under the assumption that profitability can be increased by increasing dollar volumes. Historically, First Nationals efforts were directed toward increasing total dollars of sales and total dollars of account balances. In recent years, however, First Nationals profits have been eroding. Increased competition, particularly from savings and loan institutions, was the cause of the difficulties. As key managers discussed the banks problems, it became apparent that they had no idea what their products were costing. Upon reflection, they realized that they had often made decisions to offer a new product which promised to increase dollar balances without any consideration of what it cost to provide the service. After some discussion, the bank decided to hire a consultant to compute the costs of three products: checking accounts, personal loans, and the gold VISA. The consultant identified the following activities, costs, and activity drivers (annual data): The following annual information on the three products was also made available: In light of the new cost information, Larry Roberts, the bank president, wanted to know whether a decision made two years ago to modify the banks checking account product was sound. At that time, the service charge was eliminated on accounts with an average annual balance greater than 1,000. Based on increases in the total dollars in checking, Larry was pleased with the new product. The checking account product is described as follows: (1) checking account balances greater than 500 earn interest of 2 percent per year, and (2) a service charge of 5 per month is charged for balances less than 1,000. The bank earns 4 percent on checking account deposits. Fifty percent of the accounts are less than 500 and have an average balance of 400 per account. Ten percent of the accounts are between 500 and 1,000 and average 750 per account. Twenty-five percent of the accounts are between 1,000 and 2,767; the average balance is 2,000. The remaining accounts carry a balance greater than 2,767. The average balance for these accounts is 5,000. Research indicates that the 2,000 category was by far the greatest contributor to the increase in dollar volume when the checking account product was modified two years ago. Required: 1. Calculate rates for each activity. 2. Using the rates computed in Requirement 1, calculate the cost of each product. 3. Evaluate the checking account product. Are all accounts profitable? Compute the average annual profitability per account for the four categories of accounts described in the problem. What recommendations would you make to increase the profitability of the checking account product? (Break-even analysis for the unprofitable categories may be helpful.)arrow_forward1. Identify two warning signals that could have negative implications with respect to the company’s ability to generate cash flows to meet its future needs. In each case, explain why the signal you have identified could reflect a cash flow problem. 2. At the annual general meeting of White Star, the managing director, Ms. Rose Dawson, made the following statement: ‘ Recently a number of articles in the financial press have questioned the financial position of our company. This criticism is totally unjustified. Net profit was $25 million and total assets have increased by $160 million. These results show that 2019 was a very successful year for White Star. ’ Comment on Ms. Dawson’s statement. Info: WR: 2018 = 380m 2019 = 395 m CR: 2018 = 1.8m 2019 = 1.6m QR: 2018 = 1.2m 2019 = 0.9m Debt-to-equity ratio: 2018 = 0.85 times 2019 = 0.68 times Return-on-equity ratio: 2018 = 8.33 % 2019 = 12.26% Earnings per share: 2018 = 0.312m 2019 = 0.475m Net operating profit after tax is $25…arrow_forwardInterpreting the Effects of Sales Declines and Changes in Receivables on Cash Flow from Operations E14- 24 Stride Rite Corporation manufactures and markets shoes under the brand names Stride Rite, Keds, and Sperry Top-Sider. Three recent years produced a combination of declining sales revenue and net income culminating in a net loss of $8,430,000. Each year, however, Stride Rite was able to report positive cash flows from operations. Contributing to that positive cash flow was the change in accounts receivable. The current and prior year balance sheets reported the following: (dollars in thousands) Current Year Previous Year Accounts and notes receivable, less allowances $48,066 $63,403 Required: 1. On the current year's cash flow statement (indirect method), how would the change in accounts receivable affect cash flow from operations? Explain why it would have this effect. 2. Explain how declining sales revenue often leads to (a) declining accounts receivable and (b) cash collections…arrow_forward
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