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Questions and Answers of Accounting

The outstanding capital stock of Pennington Corporation consists of 2,000 shares of $100 par value, 6% preferred, and 5,000 shares of $50 par value common. Assuming that the company has retained
Martinez Company’s ledger shows the following balances on December 31, 2010. 5% preferred stock—$10 par value, outstanding 20,000 shares $ 200,000Common
Hagar Company has outstanding 2,500 shares of $100 par, 6% preferred stock and 15,000 shares of $10 par value common. The schedule below shows the amount of dividends paid out over the last 4 years.
(Computation of Book Value per Share) John stone Inc. began operations in January 2009 and reported the following results for each of its 3 years of operations.2009 $260,000 net loss
At what percentage point can the issuance of additional shares still qualify as a stock dividend, as opposed to a stock split?
A company plans to issue shares and wants to know the SEC’s stance on the accounting treatment for the costs of issuing stock. Can these costs be deferred, or must they be expensed immediately?
If a company chooses to purchase its own shares and then either (1) retires the repurchased shares and issues additional shares, or (2) resells the repurchased shares, can a gain or loss be
Access the glossary (“Master Glossary”) to answer the following.(a) What is a “convertible security”?(b) What is a “stock dividend”?(c) What is a “stock split”?(d) What are
On January 5, 2010, Phelps Corporation received a charter granting the right to issue 5,000 shares of $100 par value, 8% cumulative and nonparticipating preferred stock, and 50,000 shares of $10 par
(Treasury Stock Transactions and Presentation) Clemson Company had the following stockholders’ equity as of January 1, 2010. Common stock, $5 par value, 20,000 shares issued
Hatch Company has two classes of capital stock outstanding: 8%, $20 par preferred and $5 par common. At December 31, 2010, the following accounts were included in stockholders’ equity.Preferred
Seles Corporation’s charter authorized issuance of 100,000 shares of $10 par value common stock and 50,000 shares of $50 preferred stock. The following transactions involving the issuance of
Before Gordon Corporation engages in the treasury stock transactions listed below, its general ledger reflects, among others, the following account balances (par value of its stock is $30 per share).
(Treasury Stock—Cost Method—Equity Section Preparation) Washington Company has the following stockholders’ equity accounts at December 31, 2010.Common Stock—$100 par value, authorized 8,000
The books of Conchita Corporation carried the following account balances as of December 31, 2010. The company decided not to pay any dividends in 2010. The board of directors, at their annual meeting
Myers Company provides you with the following condensed balance sheet information. For each transaction below, indicate the dollar impact (if any) on the following five items: (1) total assets, (2)
(Stockholders’ Equity Section of Balance Sheet) The following is a summary of all relevant transactions of Vicario Corporation since it was organized in 2010. In 2010, 15,000 shares were
Oregon Inc. $10 par common stock is selling for $110 per share. Four million shares are currently issued and outstanding. The board of directors wishes to stimulate interest in Oregon common stock
Earn Hart Corporation has outstanding 3,000,000 shares of common stock of a par value of $10 each. The balance in its retained earnings account at January 1, 2010, was $24,000,000, and it then had
(Analysis and Classification of Equity Transactions) Penn Company was formed on July 1, 2008. It was authorized to issue 300,000 shares of $10 par value common stock and 100,000 shares of 8% $25 par
(Preemptive Rights and Dilution of Ownership) Wallace Computer Company is a small, closely held corporation. Eighty percent of the stock is held by Derek Wallace, president. Of the remainder, 10% is
(Issuance of Stock for Land) Martin Corporation is planning to issue 3,000 shares of its own $10 par value common stock for two acres of land to be used as a building site.(a) What general rule
(Conceptual Issues—Equity) Statements of Financial Accounting Concepts set forth financial accounting and reporting objectives and fundamentals that will be used by the Financial Accounting
(Stock Dividends and Splits) The directors of Merchant Corporation are considering the issuance of a stock dividend. They have asked you to discuss the proposed action by answering the following
(Stock Dividends) Kulikowski Inc., a client, is considering the authorization of a 10% common stock dividend to common stockholders. The financial vice president of Kulikowski wishes to discuss the
(Stock Dividend, Cash Dividend, and Treasury Stock) Mask Company has 30,000 shares of $10 par value common stock authorized and 20,000 shares issued and outstanding. On August 15, 2010, Mask
(Treasury Stock) Lois Kenneth, president of Sycamore Corporation, is concerned about several large stockholders who have been very vocal lately in their criticisms of her leadership. She thinks they
The financial statements of P&G are presented in Appendix 5B or can be accessed at the book’s companion website, www.wiley.com/college/kieso.Refer to these financial statements and the
(a) What is the par or stated value of Coca-Cola’s and PepsiCo’s common or capital stock?(b) What percentage of authorized shares was issued by Coca-Cola at December 31, 2007, and by PepsiCo at
Kellogg Company is the world's leading producer of ready-to-eat cereal products. In recent years the company has taken numerous steps aimed at improving its profitability and earnings per share.
The following note related to stockholders’ equity was reported in Wiebold, Inc.’s annual report. On February 1, the Board of Directors declared a 3-for-2 stock split, distributed on February 22
Access the FASB Codification at asc.fasb.org/home to conduct research using the Codification Research System to prepare responses to the following items. Provide Codification references for your
What is meant by a dilutive security?
Briefly explain why corporations issue convertible securities.
Discuss the similarities and the differences between convertible debt and debt issued with stock warrants.
Bridgewater Corp. offered holders of its 1,000 convertible bonds a premium of $160 per bond to induce conversion into shares of its common stock. Upon conversion of all the bonds, Bridgewater Corp.
Explain how the conversion feature of convertible debt has a value(a) To the issuer and(b) To the purchaser.
What are the arguments for giving separate accounting recognition to the conversion feature of debentures?
Four years after issue, debentures with a face value of $1,000,000 and book value of $960,000 are tendered for conversion into 80,000 shares of common stock immediately after an interest payment
On July 1, 2010, Roberts Corporation issued $3,000,000 of 9% bonds payable in 20 years. The bonds include detachable warrants giving the bondholder the right to purchase for $30 one share of $1 par
What are stock rights? How does the issuing company account for them?
Briefly explain the accounting requirements for stock compensation plans under GAAP.
Cordero Corporation has an employee stock-purchase plan which permits all full-time employees to purchase 10 shares of common stock on the third anniversary of their employment and an additional 15
What date or event does the profession believe should be used in determining the value of a stock option? What arguments support this position?
Over what period of time should compensation cost be allocated?
How compensation expense is computed using the fair value approach?
What are the advantages of using restricted stock to compensate employees?
At December 31, 2010, Reid Company had 600,000 shares of common stock issued and outstanding, 400,000 of which had been issued and outstanding throughout the year and 200,000 of which were issued on
What effect do stock dividends or stock splits have on the computation of the weighted-average number of shares outstanding?
Define the following terms.(a) Basic earnings per share.(b) Potentially dilutive security.(c) Diluted earnings per share.(d) Complex capital structure.(e) Potential common stock.
What are the computational guidelines for determining whether a convertible security is to be reported as part of diluted earnings per share?
Discuss why options and warrants may be considered potentially dilutive common shares for the computation of diluted earnings per share.
Explain how convertible securities are determined to be potentially dilutive common shares and how those convertible securities that are not considered to be potentially dilutive common shares enter
Explain the treasury-stock method as it applies to options and warrants in computing dilutive earnings per share data.
Earnings per share can affect market prices of common stock. Can market prices affect earnings per share? Explain.
What is meant by the term anti dilution? Give an example.
What type of earnings per share presentation is required in a complex capital structure?
Where can authoritative iGAAP are found related to dilutive securities, stock-based compensation, and earnings per share?
Briefly describe some of the similarities and differences between U.S. GAAP and iGAAP with respect to the accounting for dilutive securities, stock-based compensation, and earnings per share.
Norman Co., a fast-growing golf equipment company, uses U.S. GAAP. It is considering the issuance of convertible bonds. The bonds mature in 10 years, have a face value of $400,000, and pay interest
Briefly discuss the convergence efforts that are under way by the IASB and FASB in the area of dilutive securities and earnings per share.
How is anti dilution determined when multiple securities are involved?
Archer Inc. issued $4,000,000 par value, 7% convertible bonds at 99 for cash. If the bonds had not included the conversion feature, they would have sold for 95. Prepare the journal entry to record
Petrenko Corporation has outstanding 2,000 $1,000 bonds, each convertible into 50 shares of $10 par value common stock. The bonds are converted on December 31, 2010, when the unamortized discount is
Pechstein Corporation issued 2,000 shares of $10 par value common stock upon conversion of 1,000 shares of $50 par value preferred stock. The preferred stock was originally issued at $60 per share.
Eisler Corporation issued 2,000 $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling in the market at 98, and the warrants had a market
McIntyre Corporation issued 2,000 $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling separately at 98. The market price of the
On January 1, 2010, Bar wood Corporation granted 5,000 options to executives. Each option entitles the holder to purchase one share of Bar wood’s $5 par value common stock at $50 per share at any
Refer to the data for bar Wood Corporation in BE16-6. Repeat the requirements assuming that instead of options, bar wood granted 2,000 shares of restricted stock.
On January 1, 2010 (the date of grant), Lutz Corporation issues 2,000 shares of restricted stock to its executives. The fair value of these shares is $75,000, and their par value is $10,000. The
Kalin Corporation had 2010 net income of $1,000,000. During 2010, Kalin paid a dividend of $2 per share on 100,000 shares of preferred stock. During 2010, Kalin had outstanding 250,000 shares of
Douglas Corporation had 120,000 shares of stock outstanding on January 1, 2010. On May 1, 2010, Douglas issued 60,000 shares. On July 1, Douglas purchased 10,000 treasury shares, which were reissued
Tomba Corporation had 300,000 shares of common stock outstanding on January 1, 2010. On May 1, Tomba issued 30,000 shares.(a) Compute the weighted-average number of shares outstanding if the 30,000
Rockland Corporation earned net income of $300,000 in 2010 and had 100,000 shares of common stock outstanding throughout the year. Also outstanding all year was $800,000 of 10% bonds, which are
DiCenta Corporation reported net income of $270,000 in 2010 and had 50,000 shares of common stock outstanding throughout the year. Also outstanding all year were 5,000 shares of cumulative preferred
Bedard Corporation reported net income of $300,000 in 2010 and had 200,000 shares of common stock outstanding throughout the year. Also outstanding all year were 45,000 options to purchase common
The 2010 income statement of Wasmeier Corporation showed net income of $480,000 and an extraordinary loss of $120,000. Wasmeier had 100,000 shares of common stock outstanding all year. Prepare
Ferraro, Inc. established a stock-appreciation rights (SAR) program on January 1, 2010, which entitles executives to receive cash at the date of exercise for the difference between the market price
Access the glossary (“Master Glossary”) to answer the following.(a) What is the definition of “basic earnings per share”?(b) What is “dilution”?(c) What is a “warrant”?(d) What is a
For how many periods must a company present EPS data?
For each period that an income statement is presented, what must a company disclose about its EPS?
If a company’s outstanding shares are increased through a stock dividend or a stock split, how would that alter the presentation of its EPS data?
(Warrants Issued with Bonds and Convertible Bonds) Incurring long-term debt with an arrangement whereby lenders receive an option to buy common stock during all or a portion of the time the debt is
(Ethical Issues—Compensation Plan) The executive officers of Rouse Corporation have a performance-based compensation plan. The performance criteria of this plan are linked to growth in earnings per
For various reasons a corporation may issue warrants to purchase shares of its common stock at specified prices that, depending on the circumstances, may be less than, equal to, or greater than the
(Stock Warrants—Various Types) For various reasons a corporation may issue warrants to purchase shares of its common stock at specified prices that, depending on the circumstances, may be less
(EPS: Preferred Dividends, Options, and Convertible Debt) “Earnings per share” (EPS) is the most featured, single financial statistic about modern corporations. Daily published quotations of
(EPS Concepts and Effect of Transactions on EPS) Chorkina Corporation, a new audit client of yours, has not reported earnings per share data in its annual reports to stockholders in the past. The
(EPS, Anti dilution) Brad Dolan, a stockholder of Rhode Corporation, has asked you, the firm’s accountant, to explain why his stock warrants were not included in diluted EPS. In order to explain
Refer to P&G’s financial statements and accompanying notes to answer the following questions.(a) Under P&G’s stock-based compensation plan, stock options are granted annually to key
Go to the book’s companion website and use information found there to answer the following questions related to The Coca-Cola Company and PepsiCo, Inc.(a) What employee stock-option compensation
Kellogg Company in its 2004 Annual Report in Note 1—Accounting Policies made the comment on page 853 about its accounting for employee stock options and other stock-based compensation. This was the
Sepracor, Inc., a U.S. drug company, reported the following information. The company prepares its financial statements in accordance with U.S. GAAP.
Richardson Company is contemplating the establishment of a share-based compensation plan to provide long-run incentives for its top management. However, members of the compensation committee of the
For each of the unrelated transactions described below, present the entry(ies) required to record each transaction.1. Coyle Corp. issued $10,000,000 par value 10% convertible bonds at 99. If the
(Conversion of Bonds) Schuss Inc. issued $3,000,000 of 10%, 10-year convertible bonds on June 1, 2010, at 98 plus accrued interest. The bonds were dated April 1, 2010, with interest payable April 1
(Conversion of Bonds) Gabel Company has bonds payable outstanding in the amount of $400,000, and the Premium on Bonds Payable account has a balance of $6,000. Each $1,000 bond is convertible into 20
(Conversion of Bonds) On January 1, 2010, when its $30 par value common stock was selling for $80 per share, Bartz Corp. issued $10,000,000 of 8% convertible debentures due in 20 years. The
(Conversion of Bonds) The December 31, 2010, balance sheet of Osygus Corp. is as follows. 10% callable, convertible bonds payable (semiannual interest dates April 30 and October 31;
(Conversion of Bonds) On January 1, 2009, Trillini Corporation issued $3,000,000 of 10-year, 8% convertible debentures at 102. Interest is to be paid semiannually on June 30 and December 31. Each

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