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Questions and Answers of Accounting

Alamar Petroleum Company offers its employees the option of contributing retirement funds up to 5% of their wages or salaries, with the contribution being matched by Alamar. The company also pays 80%
A fellow accountant has solicited your opinion regarding the classification of short-term obligations repaid prior to being replaced by a long-term security. Cheshire Foods, Inc., issued $5,000,000
The Zoo Doo Compost Company processes a premium organic fertilizer made with the help of the animals at the Memphis Zoo. Zoo Doo is sold in a specially designed plastic pail that may be kept and used
SFAC No. 6, “Elements of Financial Statements,” states that “an entity's assets, liabilities, and equity (net assets) all pertain to the same set of probable future economic benefits.”
Cates Computing Systems develops and markets commercial software for personal computers and workstations. Three situations involving compensation for possible future absences of Cates's employees are
Outdoors R Us owns several membership-based campground resorts throughout the Southwest. The company sells campground sites to new members, usually during a get-acquainted visit and tour. The
“I see an all-nighter coming on,” Gayle grumbled. “Why did Mitch just now give us this assignment?” Your client, Western Manufacturing, is involved with several situations that possibly
In the March 2012 meeting of Valleck Corporation's board of directors, a question arose as to the way a possible obligation should be disclosed in the forthcoming financial statements for the year
Late in 2011, you and two other officers of Curbo Fabrications Corporation just returned from a meeting with officials of The City of Jackson. The meeting was unexpectedly favorable even though it
EDGAR (Electronic Data Gathering, Analysis, and Retrieval system) performs automated collection, validation, indexing, acceptance, and forwarding of submissions by companies and others who are
Kevin Brantly is a new hire in the controller's office of Fleming Home Products. Two events occurred in late 2011 that the company had not previously encountered. The events appear to affect two of
SkillSoft is a leading provider of content resources and complementary technologies for integrated enterprise learning. The company's fiscal year ends January 31, 2006, and it plans to file its
This was Joel Craig's first visit to the controller's corner office since being recruited for the senior accountant position in May. Because he'd been directed to bring with him his preliminary
As a second-year financial analyst for A.J. Straub Investments, you are performing an initial analysis on Fizer Pharmaceuticals. A difficulty you've encountered in making comparisons with its chief
IGF Foods Company is a large, primarily domestic, consumer foods company involved in the manufacture, distribution and sale of a variety of food products. Industry averages are derived from Troy's
Refer to the financial statements and related disclosure notes of Dell located in the company's 2009 annual report included with all new copies of the text. They also can be found at www.dell.com.
The following is an excerpt from USAToday.com in July 2007:Microsoft (MSFT) on Thursday extended the warranty on its Xbox 360 video game console and said it will take a charge of more than $1 billion
British Airways, Plc. (BA), a U.K. company, prepares its financial statements according to International Financial Reporting Standards. BA's annual report for the year ended March 31, 2009, which
How is periodic interest determined for outstanding liabilities? For outstanding receivables? How does the approach compare from one form of debt instrument (say bonds payable) to another (say notes
As a general rule, how should long-term liabilities be reported on the debtor's balance sheet?
How are bonds and notes the same? How do they differ?
What information is contained in a bond indenture? What purpose does it serve?
On January 1, 2011, Brandon Electronics issued $85 million of 11.5% bonds, dated January 1. The market yield for bonds of maturity issued by similar firms in terms of riskiness is 12.25%. How can
How is the price determined for a bond (or bond issue)?
A zero-coupon bond pays no interest. Explain.
When bonds are issued at a premium the debt declines each period. Explain.
Compare the two commonly used methods of determining interest on bonds.
GAAP requires that debt issue costs be recorded separately and amortized over the term of the related debt. Describe a logical alternative to this accounting treatment.
When a note's stated rate of interest is unrealistic relative to the market rate, the concept of substance over form should be employed. Explain.
How does an installment note differ from a note for which the principal is paid as a single amount at maturity?
Long-term debt can be reported either (a) as a single amount, net of any discount or increased by any premium or (b) at its face amount accompanied by a separate valuation account for the discount or
Early extinguishment of debt often produces a gain or a loss. How is the gain or loss determined?
Both convertible bonds and bonds issued with detachable warrants have features of both debt and equity. How does the accounting treatment differ for the two hybrid securities? Why is the accounting
At times, companies try to induce voluntary conversion by offering an added incentive—maybe cash, stock warrants, or a more favorable conversion ratio. How is such an inducement accounted for? How
Cordova Tools has bonds outstanding during a year in which the market rate of interest has risen. If Cordova has elected the fair value option for the bonds, will it report a gain or a loss on the
If a company prepares its financial statements according to International Financial Reporting Standards, how would it account for convertible bonds it issues for $12.5 million? What is the
Why will bonds always sell at their price plus any interest that has accrued since the last interest date?
When the original terms of a debt agreement are changed because of financial difficulties experienced by the debtor (borrower), the new arrangement is referred to as a troubled debt restructuring.
Pratt Industries owes First National Bank $5 million but, due to financial difficulties, is unable to comply with the original terms of the loan. The bank agrees to settle the debt in exchange for
The way a debtor accounts for the restructuring depends on the extent of the reduction in cash payments called for by the restructured arrangement. Describe, in general, the accounting procedure for
Holiday Brands issued $30 million of 6%, 30-year bonds for $27.5 million. What is the amount of interest that Holiday will pay semiannually to bondholders?
A company issued 5%, 20-year bonds with a face amount of $80 million. The market yield for bonds of similar risk and maturity is 6%. Interest is paid semiannually. At what price did the bonds sell?
A company issued 6%, 15-year bonds with a face amount of $75 million. The market yield for bonds of similar risk and maturity is 6%. Interest is paid semiannually. At what price did the bonds sell?
A company issued 5%, 20-year bonds with a face amount of $100 million. The market yield for bonds of similar risk and maturity is 4%. Interest is paid semiannually. At what price did the bonds sell?
On January 1, a company issued 7%, 15-year bonds with a face amount of $90 million for $82,218,585 to yield 8%. Interest is paid semiannually. What was interest expense at the effective interest rate
On January 1, a company issued 3%, 20-year bonds with a face amount of $80 million for $69,033,776 to yield 4%. Interest is paid semiannually. What was the interest expense at the effective interest
On January 1, a company issued 3%, 20-year bonds with a face amount of $80 million for $69,033,776 to yield 4%. Interest is paid semiannually. What was the straight-line interest expense on the
On January 1, a company purchased 3%, 20-year corporate bonds for $69,033,776 as an investment. The bonds have a face amount of $80 million and are priced to yield 4%. Interest is paid semiannually.
Snipes Construction paid for earth-moving equipment by issuing a $300,000, 3-year note that specified 2% interest to be paid on December 31 of each year. The equipment's retail cash price was
On January 1, a company borrowed cash by issuing a $300,000, 5%, installment note to be paid in three equal payments at the end of each year beginning December 31. What would be the amount of each
A company retired $60 million of its 6% bonds at 102 ($61.2 million) before their scheduled maturity. At the time, the bonds had a remaining discount of $2 million. Prepare the journal entry to
Hoffman Corporation issued $60 million of 5%, 20-year bonds at 102. Each of the 60,000 bonds was issued with 10 detachable stock warrants, each of which entitled the bondholder to purchase, for $20,
Hoffman Corporation issued $60 million of 5%, 20-year bonds at 102. Each of the 60,000 bonds was convertible into one share of $1 par common stock. Prepare the journal entry to record the issuance of
AI Tool and Dye issued 8% bonds with a face amount of $160 million on January 1, 2011. The bonds sold for $150 million. For bonds of similar risk and maturity the market yield was 9%. Upon issuance,
Your investment department has researched possible investments in corporate debt securities. Among the available investments are the following $100 million bond issues, each dated January 1, 2011.
Determine the price of a $1 million bond issue under each of the following independentassumptions:
The Bradford Company issued 10% bonds, dated January 1, with a face amount of $80 million on January 1, 2011. The bonds mature in 2020 (10 years). For bonds of similar risk and maturity, the market
The Bradford Company sold the entire bond issue described in the previous exercise to Saxton-Bose Corporation.Required:1. Prepare the journal entry to record the purchase of the bonds by Saxton-Bose
Myriad Solutions, Inc., issued 10% bonds, dated January 1, with a face amount of $320 million on January 1, 2011 for $283,294,720. The bonds mature in 2021 (10 years). For bonds of similar risk and
The Gorman Group issued $900,000 of 13% bonds on June 30, 2011, for $967,707. The bonds were dated on June 30 and mature on June 30, 2031 (20 years). The market yield for bonds of similar risk and
Universal Foods issued 10% bonds, dated January 1, with a face amount of $150 million on January 1, 2011. The bonds mature on December 31, 2025 (15 years). The market rate of interest for similar
Universal Foods sold the entire bond issue described in the previous exercise to Wang Communications.Required:1. Prepare the journal entry to record the purchase of the bonds by Wang Communications
When Patey Pontoons issued 6% bonds on January 1, 2011, with a face amount of $600,000, the market yield for bonds of similar risk and maturity was 7%. The bonds mature December 31, 2014 (4 years).
National Orthopedics Co. issued 9% bonds, dated January 1, with a face amount of $500,000 on January 1, 2011. The bonds mature in 2014 (4 years). For bonds of similar risk and maturity the market
On February 1, 2011, Strauss-Lombardi issued 9% bonds, dated February 1, with a face amount of $800,000. The bonds sold for $731,364 and mature on January 31, 2031 (20 years). The market yield for
On March 1, 2011, Stratford Lighting issued 14% bonds, dated March 1, with a face amount of $300,000. The bonds sold for $294,000 and mature on February 28, 2031 (20 years). Interest is paid
Federal Semiconductors issued 11% bonds, dated January 1, with a face amount of $800 million on January 1, 2011. The bonds sold for $739,814,813 and mature in 2030 (20 years). For bonds of similar
When companies offer new debt security issues, they publicize the offerings in the financial press and on Internet sites. Assume the following were among the debt offerings reported in December
At the end of 2010, Majors Furniture Company failed to accrue $61,000 of interest expense that accrued during the last five months of 2010 on bonds payable. The bonds mature in 2024. The discount on
Wilkins Food Products, Inc., acquired a packaging machine from Lawrence Specialists Corporation. Lawrence completed construction of the machine on January 1, 2009. In payment for the machine Wilkins
Amber Mining and Milling, Inc., contracted with Truax Corporation to have constructed a custom-made lathe. The machine was completed and ready for use on January 1, 2011. Amber paid for the lathe by
American Food Services, Inc., acquired a packaging machine from Barton and Barton Corporation. Barton and Barton completed construction of the machine on January 1, 2011. In payment for the $4
LCD Industries purchased a supply of electronic components from Entel Corporation on November 1, 2011. In payment for the $24 million purchase, LCD issued a 1-year installment note to be paid in
Access the FASB's Codification Research System at the FASB website (www.fasb.org). Determine the specific citation for accounting for each of the following items:1. Disclosure requirements for
The balance sheet of Indian River Electronics Corporation as of December 31, 2010, included 12.25% bonds having a face amount of $90 million. The bonds had been issued in 2003 and had a remaining
On January 1, 2011, Gless Textiles issued $12 million of 9%, 10-year convertible bonds at 101. The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of
Refer to the situation described in the previous exercise.Required:How might your solution to requirement 1 for the issuer of the bonds differ if Gless Textiles prepares its financial statements
On January 1, 2011, Madison Products issued $40 million of 6%, 10-year convertible bonds at a net price of $40.8 million. Madison recently issued similar, but nonconvertible, bonds at 99 (that is,
Refer to the situation described in the previous exercise.Required:How might your solution for the issuer of the bonds differ if Madison Products prepares its financial statements according to
On August 1, 2011, Limbaugh Communications issued $30 million of 10% nonconvertible bonds at 104. The bonds are due on July 31, 2031. Each $1,000 bond was issued with 20 detachable stock warrants,
Federal Semiconductors issued 11% bonds, dated January 1, with a face amount of $800 million on January 1, 2011. The bonds sold for $739,814,813 and mature in 2030 (20 years). For bonds of similar
On January 1, 2011, Rapid Airlines issued $200 million of its 8% bonds for $184 million. The bonds were priced to yield 10%. Interest is payable semiannually on June 30 and December 31. Rapid
On January 1, 2011, Essence Communications issued $800,000 of its 10-year, 8% bonds for $700,302. The bonds were priced to yield 10%. Interest is payable semiannually on June 30 and December 31.
On March 1, 2011, Brown-Ferring Corporation issued $100 million of 12% bonds, dated January 1, 2011, for $99 million (plus accrued interest). The bonds mature on December 31, 2030, and pay interest
At January 1, 2011, Transit Developments owed First City Bank Group $600,000, under an 11% note with three years remaining to maturity. Due to financial difficulties, Transit was unable to pay the
At January 1, 2011, Brainard Industries, Inc., owed Second BancCorp $12 million under a 10% note due December 31, 2013. Interest was paid last on December 31, 2009. Brainard was experiencing severe
At January 1, 2011, NCI Industries, Inc., was indebted to First Federal Bank under a $240,000, 10% unsecured note. The note was signed January 1, 2007, and was due December 31, 2012. Annual interest
In negotiating and effecting a troubled debt restructuring, the creditor usually incurs various legal costs. The FASB Accounting Standards Codification represents the single source of authoritative
The following questions are used in the Kaplan CPA Review Course to study long-term liabilities while preparing for the CPA examination. Determine the response that best completes the statements or
The following questions dealing with long-term liabilities are adapted from questions that previously appeared on Certified Management Accountant (CMA) examinations. The CMA designation sponsored by
On January 1, 2011, Instaform, Inc., issued 10% bonds with a face amount of $50 million, dated January 1. The bonds mature in 2030 (20 years). The market yield for bonds of similar risk and maturity
On January 1, 2011, Baddour, Inc., issued 10% bonds with a face amount of $160 million. The bonds were priced at $140 million to yield 12%. Interest is paid semiannually on June 30 and December 31.
On January 1, 2011, Bradley Recreational Products issued $100,000, 9%, four-year bonds. Interest is paid semiannually on June 30 and December 31. The bonds were issued at $96,768 to yield an annual
On January 1, 2011, Tennessee Harvester Corporation issued debenture bonds that pay interest semiannually on June 30 and December 31. Portions of the bond amortization schedule appear
On February 1, 2011, Cromley Motor Products issued 9% bonds, dated February 1, with a face amount of $80 million. The bonds mature on January 31, 2015 (4 years). The market yield for bonds of similar
On April 1, 2011, Western Communications, Inc., issued 12% bonds, dated March 1, 2011, with face amount of $30 million. The bonds sold for $29.3 million and mature on February 28, 2014. Interest is
McWherter Instruments sold $400 million of 8% bonds, dated January 1, on January 1, 2011. The bonds mature on December 31, 2030 (20 years). For bonds of similar risk and maturity, the market yield
The fiscal year ends December 31 for Lake Hamilton Development. To provide funding for its Moonlight Bay project, LHD issued 5% bonds with a face amount of $500,000 on November 1, 2011. The bonds
On January 1, 2011, Darnell Window and Pane issued $18 million of 10-year, zero-coupon bonds for $5,795,518.Required:1. Prepare the journal entry to record the bond issue.2. Determine the effective
At the beginning of the year, Lambert Motors issued the three notes described below. Interest is paid at year-end.1. The company issued a two-year, 12%, $600,000 note in exchange for a tract of land.

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