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    Kroger Foods, Hilton International Inc.

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    1A
    The following information, based on the 2007 Annual Report to Shareholders of Kroger Foods (all in $ millions),

    Accounts payable 1,897
    Accounts receivables (net) 3,131
    Accrued liabilities and taxes 4,105
    Cash and cash equivalents 162
    Cost of sales 17,531
    Current payables to parent and affiliates 1,652
    Current portion of long-term debt 540
    Deferred income taxes and other liabilities 10,311
    Earnings retained in the business 2,391
    Goodwill and other intangible assets (net) 35,957
    Income tax expense 1,565
    Interest and other debt expense, net 1,437
    Inventories 3,026
    Long-term debt 8,134
    Long-term notes payable to parent and affiliates 5,000
    Marketing, general and administration expenses 11,460
    Operating revenues 33,875
    Other current assets 687
    Other noncurrent assets 3,726
    Other stockholders' equity (2,568 )
    Paid-in capital for common and preferred stock 23,655
    Property, plant and equipment (net) 9,109
    Short-term borrowings 681

    Based on the information presented above, prepare, in good form, the 2007 Income Statement for Kroger Foods.

    1B
    The following balance sheet information (in $ millions) comes from the Annual Report to Shareholders of Hilton International Inc. for the year ended, January 2, 2004. Certain amounts have been blackened out to test your understanding of balance sheets. In addition, you are provided with the following information from an analysis of Hilton's financial position at the same date:
    Current ratio = 0.6973; Acid-test ratio = 0.5240; Debt-to-equity ratio = 1.131

    Required: Compute the missing amounts (rounded to the nearest $millions) in the Hilton balance sheet.

    Provide the name of the account and the dollar value next to it, such as:
    Accounts and notes receivable $1
    Prepaid taxes 1
    Total current assets 5

    ASSETS
    Current assets
    Cash and equivalents 229
    Accounts and notes receivable ?
    Prepaid taxes ?
    Other 84
    Total current assets ?
    Property and equipment, net 2,513
    Intangible assets, net ?
    Investments in affiliates 1,026
    Notes and other receivables, net 1,104
    Other 850
    Total noncurrent assets ?
    Total assets ?

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities
    Accounts payable 584
    Accrued payroll and benefits 412
    Self-insurance 43
    Other payables and accruals 731
    Total current liabilities 1,770
    Long-term debt ?
    Other long-term liabilities 1,178
    Total long-term liabilities ?
    Total liabilities ?
    Shareholders' equity
    Class A common stock, 255.6 million shares issued 3
    Additional paid-in capital 3,317
    Retained earnings ?
    Treasury stock and other (987)
    Total shareholders' equity ?
    Total liabilities and shareholders' equity 8,177

    PROBLEM # 2 -there are five parts to this problem, A through E
    2A
    Birds Co. purchased equipment on January 1, 2003, at a cost of $650,000. The asset was estimated to have a 12-year life with a residual value of $50,000. Bird uses straight-line depreciation. In 2006, Bird revised its total estimated life to 10 years, with no residual value.

    Required: Prepare journal entries to record Bird's depreciation expense for 2005 and 2006. Show computations.

    2B
    Wal-Mart appropriately uses the installment sales method of accounting for its installment sales. During 2006, Wal-Mart made installments sales of $300,000 and received payments of $135,000 on those sales. Wal-Mart's gross profit margin is 30%.
    Required: Prepare journal entries to record the sale, collection, and recognition of gross profit.

    2C
    Canada Imports sold merchandise to Food-Mart, receiving a 6-month, noninterest-bearing note for $100,000. The implied discount rate on the note is 10% per annum. Canada uses a periodic inventory system.

    Required:
    (1) Prepare the journal entry to record the sale. (2) Compute the effective rate of interest.

    2D
    Michigan Dollar Store uses the gross method to record purchase discounts, and uses a perpetual inventory system. Michigan engaged in the following transactions during April:
    4/12 Purchased $15,000 in merchandise subject to terms of 2/10, n30. The goods were shipped f.o.b. shipping point.
    4/13 Received a billing from Blue Freight Lines for $300 for the 4/12 purchase.
    4/15 Returned $1,000 of merchandise from the 4/12 purchase.
    4/20 Paid balances due from 4/12 purchase.

    Required:
    Prepare journal entries to record the above transactions.

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    Solution Preview

    1A
    The following information, based on the 2007 Annual Report to Shareholders of Kroger Foods (all in $ millions),

    Accounts payable 1,897
    Accounts receivables (net) 3,131
    Accrued liabilities and taxes 4,105
    Cash and cash equivalents 162
    Cost of sales 17,531
    Current payables to parent and affiliates 1,652
    Current portion of long-term debt 540
    Deferred income taxes and other liabilities 10,311
    Earnings retained in the business 2,391
    Goodwill and other intangible assets (net) 35,957
    Income tax expense 1,565
    Interest and other debt expense, net 1,437
    Inventories 3,026
    Long-term debt 8,134
    Long-term notes payable to parent and affiliates 5,000
    Marketing, general and administration expenses 11,460
    Operating revenues 33,875
    Other current assets 687
    Other noncurrent assets 3,726
    Other stockholders' equity (2,568 )
    Paid-in capital for common and preferred stock 23,655
    Property, plant and equipment (net) 9,109
    Short-term borrowings 681

    Based on the information presented above, prepare, in good form, the 2007 Income Statement for Kroger Foods.

    Kroger Foods
    Income Statement
    For the Year Ended December 31, 2007

    Operating revenues 33,875
    Less: Cost of sales 17,531
    Gross Margin 16,344
    Less: Marketing, general and administration expenses 11,460
    Earnings before interest and tax 4,884
    Less: Interest and other debt expense, net 1,437
    Earnings before tax 3,447
    Less: Income tax expense 1,565
    Net Income 1,882

    1B
    The following balance sheet information (in $ millions) comes from the Annual Report to Shareholders of Hilton International Inc. for the year ended, January 2, 2004. Certain amounts have been blackened out to test your understanding of balance sheets. In addition, you are provided with the following information from an analysis of Hilton's financial position at the same date:
    Current ratio = 0.6973; Acid-test ratio = 0.5240; Debt-to-equity ratio = 1.131

    Required: ...

    Solution Summary

    This solution is comprised of a detailed explanation to prepare, in good form, the 2007 Income Statement for Kroger Foods, compute the missing amounts (rounded to the nearest $millions) in the Hilton balance sheet, prepare journal entries to record Bird's depreciation expense for 2005 and 2006, journal entries to record the sale, collection, and recognition of gross profit, journal entry to record the sale, and compute the effective rate of interest, and prepare journal entries to record the above transactions.

    $2.19

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