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24.24. BRIEF EXERCISES

BE24-1 An annual report of Crestwood Industries states, "The company and its subsidiaries have long-term leases expiring on various dates after December 31, 2010. Amounts payable under such commitments, without reduction for related rental income, are expected to average approximately $5,711,000 annually for the next 3 years. Related rental income from certain subleases to others is estimated to average $3,094,000 annually for the next 3 years." What information is provided by this note?

BE24-2 An annual report of Ford Motor Corporation states, "Net income a share is computed based upon the average number of shares of capital stock of all classes outstanding. Additional shares of common stock may be issued or delivered in the future on conversion of outstanding convertible debentures, exercise of outstanding employee stock options, and for payment of defined supplemental compensation. Had such additional shares been outstanding, net income a share would have been reduced by 10¢ in the current year and 3¢ in the previous year... . As a result of capital stock transactions by the company during the current year (primarily the purchase of Class A Stock from Ford Foundation), net income a share was increased by 6¢." What information is provided by this note?

BE24-3 Morlan Corporation is preparing its December 31, 2010, financial statements. Two events that occurred between December 31, 2010, and March 10, 2011, when the statements were issued, are described below.

  1. A liability, estimated at $160,000 at December 31, 2010, was settled on February 26, 2011, at $170,000.

  2. A flood loss of $80,000 occurred on March 1, 2011.

What effect do these subsequent events have on 2010 net income?

BE24-4 Tina Bailey, a student of intermediate accounting, was heard to remark after a class discussion on segment reporting, "All this is very confusing to me. First we are told that there is merit in presenting the consolidated results, and now we are told that it is better to show segmental results. I wish they would make up their minds." Evaluate this comment.

BE24-5 Foley Corporation has seven industry segments with total revenues as follows.

Penley$600Cheng$ 225
Konami650Takuhi200
KSC250Molina700
Red Moon275  


Based only on the revenues test, which industry segments are reportable?

BE24-6 Operating profits and losses for the seven industry segments of Foley Corporation are:

Penley$ 90Cheng$ (20)
Konami(40)Takuhi34
KSC25Molina150
Red Moon50  


Based only on the operating profit (loss) test, which industry segments are reportable?

BE24-7 Identifiable assets for the seven industry segments of Foley Corporation are:

Penley$500Cheng$ 200
Konami550Takuhi150
KSC250Molina475
Red Moon400  


Based only on the identifiable assets test, which industry segments are reportable?

*BE24-8 Answer each of the questions in the following unrelated situations.

  1. The current ratio of a company is 5:1 and its acid-test ratio is 1:1. If the inventories and prepaid items amount to $500,000, what is the amount of current liabilities?

  2. A company had an average inventory last year of $200,000 and its inventory turnover was 5. If sales volume and unit cost remain the same this year as last and inventory turnover is 8 this year, what will average inventory have to be during the current year?

  3. A company has current assets of $90,000 (of which $40,000 is inventory and prepaid items) and current liabilities of $40,000. What is the current ratio? What is the acid-test ratio? If the company borrows $15,000 cash from a bank on a 120-day loan, what will its current ratio be? What will the acid-test ratio be?

  4. A company has current assets of $600,000 and current liabilities of $240,000. The board of directors declares a cash dividend of $180,000. What is the current ratio after the declaration but before payment? What is the current ratio after the payment of the dividend?

*BE24-9 Heartland Company's budgeted sales and budgeted cost of goods sold for the coming year are $144,000,000 and $99,000,000 respectively. Short-term interest rates are expected to average 10%. If Heart-land can increase inventory turnover from its present level of 9 times a year to a level of 12 times per year, compute its expected cost savings for the coming year.


  

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