the following information was taken from recent annual reports of goodyear tire amp 1323160

The following information was taken from recent annual reports of Goodyear Tire & Rubber, and PPL Energy Co., a public utility:

 

 

Goodyear             PPL

Net sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   $19.6 billion          $ 5.1 billion Average accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . .                                                                                        3.1 billion      $376 million

 

 

a.       Compute for each company the accounts receivable turnover rate for the year.

b.       Compute for each company the average number of days required to collect outstanding receiv- ables (round answers to nearest whole day).

c.       Explain why the figures computed for Goodyear in parts a and b are so different from those computed for PPL.

 

six events pertaining to financial assets are described as follows a invested idle c 1323161

Six events pertaining to financial assets are described as follows:

a.       Invested idle cash in marketable securities and classified them as available for sale.

b.       Collected an account receivable.

c.       Sold marketable securities at a loss (proceeds from the sale were equal to the market value reflected in the last balance sheet).

d.       Determined a particular account receivable to be uncollectible and wrote it off against the Allowance for Doubtful Accounts.

e.       Received interest earned on an investment in marketable securities (company policy is to rec- ognize interest as revenue when received ).

f.       Made a fair value adjustment increasing the balance in the Marketable Securities account to reflect a rise in the market value of securities owned.

Indicate the effects of each transaction or adjusting entry upon the financial measurements in the four column headings listed below. Use the code letters I for increase, D for decrease, and NE for no effect. Cash flow classifications were discussed in Chapter 2.

 

 

Transaction

Total Assets

Net Income

Operating Cash Flow

Nonoperating Cash Flow

a

 

 

 

 

 

explain how each of the following items is reported in a complete set of financial s 1323162

Explain how each of the following items is reported in a complete set of financial statements, including the accompanying notes. (In one or more cases, the item may not appear in the financial statements.) The answer to the first item is provided as an example.

a.       Cash equivalents.

b.       Cash in a special fund being accumulated as legally required for the purpose of retiring a spe- cific long-term liability.

c.       Compensating balances.

d.       The amount by which the current market value of securities classified as available for sale exceeds their cost.

e.       The Allowance for Doubtful Accounts.

f.       The accounts receivable turnover rate.

g.       Realized gains and losses on investments sold during the period.

h.       Proceeds from converting cash equivalents into cash.

i.       Proceeds from converting investments in marketable securities into cash.

Example: a. Cash equivalents normally are not shown separately in financial statements. Rather, they are combined with other types of cash and reported under the caption “Cash and Cash Equiva- lents.” A note to the statements often shows the breakdown of this asset category.

indicate the effects of the following errors on each of the items listed in the colu 1323163

Indicate the effects of the following errors on each of the items listed in the column headings below. Use the following symbols: O = overstated, U = understated, and NE = no effect. Assume that the company does not use the direct write-off method to account for uncollectible accounts.

LO7

Gross

Current

Receivables

Net

Retained

Working

Profit

Ratio

Turnover Rate

Income

Earnings

Capital

 

 

Transaction

 

a. Recorded uncollectible accounts expense by debiting Sales and crediting Accounts Receivable.

 

 

 

 

 

 

b. Wrote off an account receivable deemed uncollectible by debiting Uncollectible Accounts Expense and crediting Accounts Receivable.

 

 

 

 

 

 

c. Collected cash from credit customers in settlement of outstanding accounts receivable by debiting Cash and crediting Sales.

 

 

 

 

 

 

 

 

 

•          Gross Profit                             = Sales – Cost of Goods Sold

•          Current Ratio                         = Current Assets � Current Liabilities

•          Receivables Turnover Rate  = Sales � Average Accounts Receivable (net)

•          Working Capital                    = Current Assets – Current Liabilities

 

 

 

 

mcgoun industries pays income taxes on capital gains at a rate of 30 percent at dece 1323164

McGoun Industries pays income taxes on capital gains at a rate of 30 percent. At December 31, 2011, the company owns marketable securities that cost $90,000 but have a current market value of $260,000.

a.       How will users of McGoun’s financial statements be made aware of this substantial increase in the market value of the company’s investments?

b.       As of December 31, 2011, what income taxes has McGoun paid on the increase in value of these investments? Explain.

c.        Prepare a journal entry at January 4, 2012, to record the cash sale of these investments at

$260,000.

d.       What effect will the sale recorded in part c have on McGoun’s tax obligation for 2012?