Study Questions Ch 2 & 5

1. What information is provided in a balance sheet?

2 How is a common-size balance sheet created?

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3 Discuss how marketable securities are valued on the balance sheet.

4 How can the allowance for doubtful accounts be used to assess earnings quality?

5 Why is the valuation of inventories important in financial reporting?

6 Why would a company switch to the LIFO method of inventory valuation in an inflationary period?

7 Which inventory valuation method, FIFO or LIFO, will generally produce an ending inventory value on the balance sheet that is closest to current cost?

8 Discuss the difference between the straight-line method of depreciation and the accelerated methods. Why do companies use different depreciation methods for tax reporting and financial reporting?

9 What is the purpose of listing the account “Commitments and contingencies” on the balance sheet even though no dollar amounts appear?

10 How is it possible for a company with positive retained earnings to be unable to pay a cash dividend?

11. The King Corporation has total annual revenue of $800,000; expenses other than depreciation of $350,000; depreciation expense of $200,000 for tax purposes; and depreciation expense of $130,000 for reporting purposes. The tax rate is 34%. Calculate net income for reporting purposes and for tax purposes. What is the deferred tax liability?

12 .Explain how treasury stock affects the stockholders’ equity section of the balance sheet and the calculation of earnings per share.

CHART FOR QUESTIONS 11 and 12
2013 2012
Net Sales $1,038,159 $996,168
Accounts receivable, net of allowances for doubtful accounts of $453 in 2013 and $669 in 2012 $ 176,917 $168,732
Schedule II—Valuation and Qualifying Accounts Years Ended December 31, 2013 and 2012
Balance at Beginning of Period Charged to Costs and Expenses Deductions Balance at End of Period
2013 Allowance for doubtful accounts $ 669 $373 $589 $ 453
2012 Allowance for doubtful accounts $1,560 $ 0 $891 $ 669
2011 Allowance for doubtful accounts $1,459 $343 $242 $1,560
Extracted from 10-K filings for Zebra Technologies 2013. Obtained from U.S. Securities and Exchange Commission. www.sec.gov.

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