Questions and Answers of Corporate Financial Accounting

Entries for issuing no-par stock Obj. 2 On May 15, Helena Carpet Inc., a carpet wholesaler, issued for cash 750,000 shares of no-par common stock (with a stated value of $1.50) at $4, and on June 30,
Entries for issuing par stock Obj. 2 On January 22, Jefferson County Rocks Inc., a marble contractor, issued for cash 210,000 shares of$30 par common stock at $34, and on February 27, it issued for
Dividends per share Obj. 2 Lightfoot Inc., a software development firm, has stock outstanding as follows: 40,000 shares of cumulative preferred 1% stock, $125 par and 100,000 shares of $150 par
Dividends per share Obj. 2 Seventy-Two Inc., a developer of radiology equipment, has stock outstanding as follows: 60,000 shares of cumulative preferred 2% stock, $60 par and 300,000 shares of $20
Earnings per share Obj. 7 Financial statement data for the years 20Y5 and 20Y6 for Black Bull Inc. follow:20Y6 20Y5 Net income $2,485,700 $1,538,000 Preferred dividends $50,000 $50,000 Average number
Statement of stockholders’ equity Obj. 6 Noric Cruises Inc. began the month of October with the following balances: Common Stock,$150,000; Additional Paid-In Capital, $3,225,000; and Retained
Reporting stockholders’ equity Obj. 6 Using the following accounts and balances, prepare the “Stockholders’ Equity” section of the balance sheet. Five hundred thousand shares of common stock
Entries for treasury stock Obj. 5 On May 27, Hydro Clothing Inc. reacquired 65,000 shares of its common stock at $6 per share.On August 3, Hydro Clothing sold 48,000 of the reacquired shares at $9
Entries for stock dividends Obj. 3 Alpine Energy Corporation has 1,500,000 shares of $10 par common stock outstanding. On August 2, Alpine Energy declared a 5% stock dividend to be issued October 8
Entries for cash dividends Obj. 3 The declaration, record, and payment dates in connection with a cash dividend of $375,000 on a corporation’s common stock are October 1, November 7, and December
Entries for issuing stock Obj. 2 On January 22, Zentric Corporation issued for cash 160,000 shares of no-par common stock at$8. On February 14, Zentric issued at par value 45,000 shares of preferred
Dividends per share Obj. 2 Zero Calories Company has 15,000 shares of cumulative preferred 1% stock, $50 par and 100,000 shares of $10 par common stock. The following amounts were distributed as
What are the three classifications of restrictions of retained earnings, and how are such restrictions normally reported on the financial statements?AppendixLO1
The treasury stock in Discussion Question 7 is resold for $3,750,000.a. What is the effect on the corporation’s revenue of the period?b. What is the effect on stockholders’ equity?AppendixLO1
A corporation reacquires 60,000 shares of its own $10 par common stock for $3,000,000, recording it at cost.a. What effect does this transaction have on revenue or expense of the period?b. What
An owner of 2,500 shares of Simmons Company common stock receives a stock dividend of 50 shares.a. What is the effect of the stock dividend on the stockholder’s proportionate interest (equity) in
A corporation with both preferred stock and common stock outstanding has a substantial credit balance in its retained earnings account at the beginning of the current fiscal year. Although net income
A stockbroker advises a client to buy preferred stock, saying“With that type of stock, you will never have to worry about losing the dividends.” Is the broker right?AppendixLO1
Earnings per share Obj. 7 Financial statement data for the years 20Y2 and 20Y3 for Dovetail Corporation follow:20Y3 20Y2 Net income $448,750 $376,000 Preferred dividends $40,000 $40,000 Average
Statement of stockholders’ equity Obj. 6 Rockwell Inc. began the month of June with the following balances: Common Stock, $50,000;Additional Paid-In Capital, $2,000,000; and Retained Earnings,
Reporting stockholders’ equity Obj. 6 Using the following accounts and balances, prepare the “Stockholders’ Equity” section of the balance sheet. Two hundred fifty thousand shares of common
Entries for treasury stock Obj. 5 On January 31, Wilderness Resorts Inc. reacquired 22,500 shares of its common stock at $31 per share. On April 20, Wilderness Resorts sold 12,800 of the reacquired
Entries for stock dividends Obj. 3 Olde Wine Corporation has 250,000 shares of $40 par common stock outstanding. On February 15, Olde Wine declared a 2% stock dividend to be issued May 2 to
Entries for cash dividends Obj. 3 The declaration, record, and payment dates in connection with a cash dividend of $710,000 on a corporation’s common stock are June 15, August 10, and September 15.
Entries for issuing stock Obj. 2 On August 26, Mountain Realty Inc. issued for cash 120,000 shares of no-par common stock (with a stated value of $5) at $8. On October 1, Mountain Realty issued at
Dividends per share Obj. 2 National Furniture Company has 25,000 shares of cumulative preferred 2% stock, $75 par and 200,000 shares of $10 par common stock. The following amounts were distributed as
A corporation has issued 25,000 shares of $100 par common stock and holds 3,000 of these shares as treasury stock. If the corporation declares a $2 per share cash dividend, what amount will be
If a corporation reacquires its own stock, the stock is listed on the balance sheet in the:a. “Current assets” section.b. “Long-term liabilities” section.c. “Stockholders’ Equity”
The “Stockholders’ Equity” section of the balance sheet may include:a. common stock.b. stock dividends distributable.c. preferred stock.d. all of the above.AppendixLO1
Paid-in capital for a corporation may arise from which of the following sources?a. Issuing preferred stockb. Issuing common stockc. Selling the corporation’s treasury stockd. All of the above
Which of the following is a disadvantage of the corporate form of organization?a. Limited liabilityb. Continuous lifec. Owner is separate from managementd. Ability to raise capital AppendixLO1
Describe and illustrate the accounting for treasury stock transactions.AppendixLO1
Describe the effect of stock splits on stockholders’ equity.AppendixLO1
Describe and illustrate the accounting for cash dividends and stock dividends.AppendixLO1
Describe and illustrate the characteristics of stock, classes of stock, and entries for issuing stock.AppendixLO1
Describe the nature of the corporate form of organization.AppendixLO1
Bond premium, entries for bonds payable transactions, interest method of amortizing bond premium Rodgers Corporation produces and sells football equipment. On July 1, 20Y1, Rodgers issued $65,000,000
Bond discount, entries for bonds payable transactions, interest method of amortizing bond discount On July 1, 20Y1, Livingston Corporation, a wholesaler of manufacturing equipment, issued$46,000,000
Entries for bonds payable, including bond redemption Obj. 2 The following transactions were completed by Montague Inc., whose fiscal year is the calendar year:20Y1 July 1. Issued $55,000,000 of
Bond premium, entries for bonds payable transactions Obj. 2 Rodgers Corporation produces and sells football equipment. On July 1, 20Y1, Rodgers issued$65,000,000 of 10-year, 12% bonds at a market
Bond discount, entries for bonds payable transactions Obj. 2 On July 1, 20Y1, Livingston Corporation, a wholesaler of manufacturing equipment, issued$46,000,000 of 20-year, 10% bonds at a market
Bond premium, entries for bonds payable transactions, interest method of amortizing bond premium Campbell, Inc. produces and sells outdoor equipment. On July 1, 20Y1. Campbell issued $30,000,000 of
Bond discount, entries for bonds payable transactions, interest method of amortizing bond discount On July 1, 20Y1, Danzer Industries Inc. issued $40,000,000 of 10-year, 7% bonds at a
Entries for bonds payable, including bond redemption Obj. 2 The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year:20Y1 July 1. Issued $74,000,000 of
Bond premium, entries for bonds payable transactions Obj. 2 Campbell Inc. produces and sells outdoor equipment. On July 1, 20Y1, Campbell issued $30,000,000 of 10-year, 10% bonds at a market
Bond discount, entries for bonds payable transactions Obj. 2 On July 1, 20Y1, Danzer Industries Inc. issued $50,000,000 of 10-year, 8% bonds at a market(effective) interest rate of 10%, receiving
Compute bond proceeds, amortizing discount by interest method, and interest expense Boyd Co. produces and sells aviation equipment. On the first day of its fiscal year, Boyd issued$80,000,000 of
Compute bond proceeds, amortizing premium by interest method, and interest expense Ware Co. produces and sells motorcycle parts. On the first day of its fiscal year, Ware issued$35,000,000 of
Amortize premium by interest method Shunda Corporation wholesales parts to appliance manufacturers. On January 1, Shunda issued$30,000,000 of five-year, 10% bonds at a market (effective) interest
Amortize discount by interest method On the first day of its fiscal year, Ebert Company issued $50,000,000 of 10-year, 7% bonds to finance its operations. Interest is payable semiannually. The bonds
Present value of bonds payable; premium Moss Co. issued $42,000,000 of five-year, 11% bonds, with interest payable semiannually, at a market (effective) interest rate of 9%. Determine the present
Present value of bonds payable; discount Pinder Co. produces and sells high-quality video equipment. To finance its operations, Pinder issued$25,000,000 of five-year, 7% bonds, with interest payable
Present value of an annuity Assume the same data as in Exercise 11-10, except that the current interest rate is 12%.Will the present value of your winnings using an interest rate of 12% be more than
Present value of an annuity On January 1, you win $50,000,000 in the state lottery. The $50,000,000 prize will be paid in equal installments of $6,250,000 over eight years. The payments will be made
Present value of an annuity Determine the present value of $200,000 to be received at the end of each of four years, using an interest rate of 7%, compounded annually, as follows:a. By successive
Present value of amounts due Assume that you are going to receive $50,000 in 10 years. The current market rate of interest is 4%.a. Using the present value of $1 table in Exhibit 5, determine the
Reporting bonds Obj. 3 At the beginning of the current year, two bond issues (Simmons Industries 7%, 20-year bonds and Hunter Corporation 8%, 10-year bonds) were outstanding. During the year, the
Entries for issuing and calling bonds; gain Obj. 2 Mia Breen Corp. produces and sells wind-energy-driven engines. To finance its operations, Mia Breen issued $22,000,000 of 20-year, 4% callable bonds
Entries for issuing and calling bonds; loss Obj. 2 Hoover Corp., a wholesaler of music equipment, issued $20,000,000 of 20-year, 6% callable bonds on March 1, 20Y2, at their face amount, with
Entries for issuing bonds and amortizing premium by straight-line method Obj. 2 Smiley Corporation wholesales repair products to equipment manufacturers. On April 1, 20Y1, Smiley issued $20,000,000
Entries for issuing bonds and amortizing discount by straight-line method Obj. 2 On the first day of its fiscal year, Chin Company issued $10,000,000 of five-year, 7% bonds to finance its operations
Entries for issuing bonds Obj. 2 Thomson Co. produces and distributes semiconductors for use by computer manufacturers.Thomson issued $800,000 of 10-year, 6% bonds on May 1 of the current year at
Bond price Obj. 1 United States Steel Corporation’s (X) 7.5% bonds due in 2022 were reported as selling for 103.2.Were the bonds selling at a premium or at a discount? Why is United States Steel
Times interest earned Obj. 4 Averill Products Inc. reported the following on the company’s income statement in 20Y8 and 20Y9:20Y9 20Y8 Interest expense $ 440,000 $ 400,000 Income before income tax
Redemption of bonds payable Obj. 2 An $800,000 bond issue on which there is an unamortized premium of $57,000 is redeemed for$785,000. Journalize the redemption of the bonds.AppendixLO1
Premium amortization Obj. 2 Using the bond from Basic Exercise 11-4, journalize the first interest payment and the amortization of the related bond premium.AppendixLO1
Issuing bonds at a premium Obj. 2 On the first day of the fiscal year, a company issues a $5,000,000, 7%, five-year bond that pays semiannual interest of $175,000 ($5,000,000 × 7% × ½), receiving
Discount amortization Obj. 2 Using the bond from Basic Exercise 11-2, journalize the first interest payment and the amortization of the related bond discount.AppendixLO1
Issuing bonds at a discount Obj. 2 On the first day of the fiscal year, a company issues a $3,500,000, 6% five-year bond that pays semiannual interest of $105,000 ($3,500,000 × 6% × ½), receiving
Issuing bonds at face amount Obj. 2 On January 1, the first day of the fiscal year, Designer Fabric Inc. issues a $3,000,000, 8%, 10-year bond that pays semiannual interest of $120,000 ($3,000,000 3
Fleeson Company needs additional funds to purchase equipment for a new production facility and is considering either issuing bonds payable or borrowing the money from a local bank in the form of an
Bonds Payable has a balance of $5,000,000 and Discount on Bonds Payable has a balance of $150,000. If the issuing corporation redeems the bonds at 98, is there a gain or loss on the bond
The following data relate to a $2,000,000, 8% bond issued for a selected semiannual interest period:Bond carrying amount at beginning of period $2,125,000 Interest paid during period 160,000 Interest
If bonds issued by a corporation are sold at a discount, is the market rate of interest greater or less than the contract rate?AppendixLO1
A corporation issues $26,000,000 of 9% bonds to yield interest at the rate of 7%. (a) Was the amount of cash received from the sale of the bonds greater or less than$26,000,000? (b) Identify the
If you asked your broker to purchase for you a 11%bond when the market interest rate for such bonds was 12%, would you expect to pay more or less than the face amount for the bond? Explain.AppendixLO1
Explain the meaning of each of the following terms as they relate to a bond issue: (a) convertible and(b) callable.AppendixLO1
Times interest earned Obj. 4 Berry Company reported the following on the company’s income statement in two recent years:20Y5 20Y4 Interest expense $ 320,000 $ 300,000 Income before income tax
Redemption of bonds payable Obj. 2 A $1,500,000 bond issue on which there is an unamortized discount of $70,100 is redeemed for$1,455,000. Journalize the redemption of the bonds.AppendixLO1
Premium amortization Obj. 2 Using the bond from Exercise 4, journalize the first interest payment and the amortization of the related bond premium. Round to the nearest dollar.AppendixLO1
Issuing bonds at a premium Obj. 2 On the first day of the fiscal year, a company issues a $2,000,000, 8%, five-year bond that pays semiannual interest of $80,000 ($2,000,000 × 8% × ½), receiving
Discount amortization Obj. 2 Using the bond from Exercise 2, journalize the first interest payment and the amortization of the related bond discount. Round to the nearest dollar.AppendixLO1
Issuing bonds at a discount Obj. 2 On the first day of the fiscal year, a company issues a $1,200,000, 9%, five-year bond that pays semiannual interest of $54,000 ($1,200,000 × 9% × ½), receiving
Issuing bonds at face amount Obj. 2 On January 1, the first day of the fiscal year, a company issues a $500,000, 5%, 10-year bond that pays semiannual interest of $12,500 ($500,000 3 5% 3 ½ year),
Which of the following is the entry to amortize a discount on bonds?a. Debit Discount on Bonds Payable;credit Interest Expense; credit Cashb. Debit Bonds Payable; credit Discount on Bonds Payable;
If the bonds payable account has a balance of $900,000 and the discount on bonds payable account has a balance of $72,000, what is the carrying amount of the bonds?a. $828,000b. $900,000c. $972,000d.
If a corporation plans to issue $1,000,000 of 5% bonds at a time when the market rate for similar bonds is 4%, the bonds can be expected to sell at:a. their face amount.b. a premium.c. a discount.d.
The proceeds received from issuing bonds depends on which of the following?a. Coupon rate of interestb. Market rate of interestc. Principald. All of these AppendixLO1
Describe and illustrate the reporting of bonds payable.AppendixLO1
Describe and illustrate the accounting for bonds payable.AppendixLO1
Describe the characteristics and terminology of bonds payable.AppendixLO1
Amortization and depletion entries Obj. 4, 5 Data related to the acquisition of timber rights and intangible assets during the current year ended December 31 are as follows:a. On December 31, the
Transactions for fixed assets, including sale Obj. 1, 2, 3 The following transactions and adjusting entries were completed by Robinson Furniture Co. during a three-year period. All are related to the
Depreciation by two methods; sale of fixed asset Obj. 2, 3 New tire retreading equipment, acquired at a cost of $110,000 on September 1 at the beginning of a fiscal year, has an estimated useful life
Depreciation by three methods; partial years Obj. 2 Layton Company purchased tool sharpening equipment on October 1 for $108,000. The equipment was expected to have a useful life of three years or
Comparing three depreciation methods Obj. 2 Waylander Coatings Company purchased waterproofing equipment on January 6 for $320,000.The equipment was expected to have a useful life of four years, or
Allocating payments and receipts to fixed asset accounts Obj. 1 The following payments and receipts are related to land, land improvements, and buildings acquired for use in a wholesale apparel
Amortization and depletion entries Obj. 4, 5 Data related to the acquisition of timber rights and intangible assets during the current year ended December 31 are as follows:a. Timber rights on a
Transactions for fixed assets, including sale Obj. 1, 2, 3 The following transactions and adjusting entries were completed by Legacy Furniture Co. during a three-year period. All are related to the
Depreciation by two methods; sale of fixed asset Obj. 2, 3 New lithographic equipment, acquired at a cost of $800,000 on March 1 at the beginning of a fiscal year, has an estimated useful life of

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