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financial accounting for decision makers
Questions and Answers of
Financial Accounting For Decision Makers
ABC Corporation issues 1,000 shares of \(\$ 10\) par value common stock at \(\$ 12\) per share. When the transaction is recorded, credits are made to:(a) Common Stock \(\$ 10,000\) and Paid-in
Preferred stock may have priority over com-(a) dividends.(b) assets in the event of liquidation.(c) conversion.(d) voting.
Which of these statements about small stock dividends is true?(a) A debit should be made to Retained Earnings for the par value of the shares issued.(b) Market value per share should be assigned to
A high price-earnings ratio indi- cates:(a) a company has strong future earnings potential.(b) a company's stock is priced too high and is likely to come down.(c) either (a) or (b).(d) neither (a)
Herb Fischer is nearing retirement and would like to invest in a stock that will provide a good steady income supply. Herb should choose a stock with a:(a) high current ratio.(b) high dividend
Pat Kabza, a student, asks your help in understanding some characteristics of a corporation. Explain each of these to Pat:(a) Separate legal existence(b) Limited liability of stockholders(c)
(a) Your friend T. R. Cedras cannot understand how the characteristic of corporation management is both an advantage and a disadvantage. Clarify this problem for T. R.(b) Identify and explain two
Cary Brant believes a corporation must be incorporated in the state in which its headquarters office is located. Is Cary correct? Explain.
The corporate charter of Letterman Corporation allows the issuance of a maximum of 100,000 shares of common stock. During its first 2 years of operation, Letterman sold 60,000 shares to shareholders
Wilmor, Inc., purchases 1,000 shares of its own previously issued \(\$ 5\) par common stock for \(\$ 11,000\). Assuming the shares are held in the treasury, what effect does this transaction have on
Three dates associated with Galena Company's cash dividend are May 1, May 15, and May 31. Discuss the significance of each date and give the entry at each date.
Jill Sims asks, "Since stock dividends don't change anything, why declare them?" What is your answer to Jill?
Bella Corporation has 10,000 shares of \(\$ 15\) par value common stock outstanding when it announces a 2-for-1 split. Before the split, the stock had a market price of \(\$ 140\) per share. After
WAT Inc.'s common stock has a par value of \(\$ 1\) and a current market value of \(\$ 15\). Explain why these amounts are different.
What is the formula for the dividend yield and the payout ratio, and what does each indicate?
Matthew Dodge notes that TID Industries has an earnings per share that is double that of Derauf Inc. Therefore, he concludes that TID is a better investment. Is he correct?
Some investors like to buy stocks that have low price-earnings ratios. What might their logic be in doing this?
Tracy Bono is studying for her accounting midterm examination. Identify for Tracy the advantages and disadvantages of the corporate form of business organization.
On May 10 Armada Corporation issues 1,000 shares of \(\$ 10\) par value common stock for cash at \(\$ 14\) per share. Journalize the issuance of the stock.
On June 1 Eagle Inc. issues 2,000 shares of no-par common stock at a cash price of \(\$ 7\) per share. Journalize the issuance of the shares.
Ozark Inc. issues 5,000 shares of \(\$ 100\) par value preferred stock for cash at \(\$ 112\) per share. Journalize the issuance of the preferred stock.
The Seabee Corporation has 10,000 shares of common stock outstanding. It declares a \(\$ 1\) per share cash dividend on November 1 to stockholders of record on December 1. The dividend is paid on
Satina Corporation has 100,000 shares of \(\$ 10\) par value common stock outstanding. It declares a \(10 \%\) stock dividend on December 1 when the market value per share is \(\$ 12\). The dividend
The stockholders' equity section of Desi Corporation's balance sheet consists of common stock ( \(\$ 10\) par) \(\$ 1,000,000\) and retained earnings \(\$ 400,000\). A \(10 \%\) stock dividend (
Anita Corporation has these accounts at December 31: Common Stock, \(\$ 10\) par 5,000 shares issued, \(\$ 50,000\); Paid-in Capital in Excess of Par Value \(\$ 10,000\); Retained Earnings \(\$
Abdella Corporation had a stock price of \(\$ 25\) per share at the beginning of the year and \(\$ 20\) per share at the end of the year. Its dividend has remained a constant \(\$ 1\) per share for
Paul Schwartz, president of Schwartz Corporation, believes that it is a good practice to maintain a constant payout of dividends relative to its earnings. Last year net income was \(\$ 500,000\), and
During its first year of operations, Bevis Corporation had these transactions pertaining to its common stock:\section*{Instructions}(a) Journalize the transactions, assuming that the common stock has
Santiago Co. had these transactions during the current period:June 12 Issued 60,000 shares of \(\$ 1\) par value common stock for cash of \(\$ 375,000\).July 11 Issued 1,000 shares of \(\$ 100\) par
Talley Corporation is authorized to issue both preferred and common stock. The par value of the preferred is \(\$ 50\). During the first year of operations, the company had the following events and
The stockholders' equity section of Kimbria Shumway Corporation's balance sheet at December 31 is presented here:\section*{Instructions}From a review of the stockholders' equity section, answer these
Anita Ferreri Corporation recently hired a new accountant with extensive experience in accounting for partnerships. Because of the pressure of the new job, the accountant was unable to review what he
On January 1 Tarow Corporation had 75,000 shares of no-par common stock issued and outstanding. The stock has a stated value of \(\$ 5\) per share. During the year, the following transactions
On January 1, 1998, Keyes Corporation had \(\$ 1,500,000\) of common stock outstanding that was issued at par and retained earnings of \(\$ 750,000\). The company issued 50,000 shares of common stock
On October 31 the stockholders' equity section of Sarah Lane Company's balance sheet consists of common stock \(\$ 800,000\) and retained earnings \(\$ 400,000\). Sarah is considering the following
Before preparing financial statements for the current year, the chief accountant for Phil, Chris, and Caroline Company discovered the following errors in the accounts:1. The declaration and payment
The ledger of Mintur Corporation contains these accounts: Common Stock, Preferred Stock, Treasury Stock-Common, Paid-in Capital in Excess of Par Value-Preferred Stock, Paid-in Capital in Excess of
The following accounts appear in the ledger of Ozabal Inc. after the books are closed at December 31:\section*{Instructions}Prepare the stockholders' equity section at December 31 , assuming \(\$
This financial information is available for Mary Jo Corporation:The average number of shares of common stock outstanding was 80,000 for 1997 and 100,000 for 1998 \section*{Instructions}Calculate the
This financial information is available for Fountain City Corporation:The average number of shares of common stock outstanding was 180,000 for 1997 and 150,000 for 1998
Jackie Remmers Corporation was organized on January 1, 1998. It is authorized to issue 20,000 shares of \(6 \%\), \(\$ 50\) par value preferred stock and 500,000 shares of no-par common stock with a
The stockholders' equity accounts of Chung Corporation on January 1, 1998, were Journalize transactions, post. as follows:During 1998 the corporation had these transactions and events pertaining to
On December 31, 1997, V. Conway Company had 1,500,000 shares of \(\$ 10\) par common stock issued and outstanding. The stockholders' equity accounts at December 31, 1997, had the balances listed
The ledger of Reno Corporation at December 31, 1998, after the books have been closed, contains the following stockholders' equity accounts:A review of the accounting records reveals this
Largent Corporation has been authorized to issue 20,000 shares of \(\$ 100\) par value, \(10 \%\), noncumulative preferred stock and \(1,000,000\) shares of no-par common stock. The corporation
On January 1, 1998, Wirth Corporation had these stockholders' equity accounts:\section*{Instructions}(a) Journalize the transactions.(b) Enter the beginning balances and post the entries to the
The following stockholders' equity accounts, arranged alphabetically, are in the ledger of Dublin Corporation at December 31, 1998:\section*{Instructions}Prepare the stockholders' equity section of
On January 1, 1998, Cedeno Inc. had these stockholders' equity balances:During 1998, the following transactions and events occurred:1. Issued 50,000 shares of \(\$ 2\) par value common stock as a
Wetland Corporation was organized on January 1, 1998. It is authorized to issue 10,000 shares of \(8 \%, \$ 100\) par value preferred stock and 500,000 shares of no-par common stock with a stated
The stockholders' equity accounts of Capozza Corporation on January 1, 1998, were as follows:. Preferred Stock (12%, $50 par cumulative, 10,000 shares authorized) Common Stock ($1 stated value,
On December 31, 1997, K. Schipper Company had 1,000,000 shares of \(\$ 1\) par common stock issued and outstanding. The stockholders' equity accounts at December 31, 1997, had the balances listed
The post-closing trial balance of Maggio Corporation at December 31, 1998 contains these stockholders' equity accounts:A review of the accounting records reveals this information:1. Preferred stock
The following stockholders' equity accounts, arranged alphabetically, are in the ledger of Shirley Denson Corporation at December 31, 1998:\section*{Instructions}Prepare the stockholders' equity
On January 1, 1998, Casey Stengel Corporation had these stockholders' equity Prepare dividend entries, accounts:\section*{Instructions}(a) Journalize the transactions.(b) Enter the beginning balances
The stockholders' equity section of Starbucks' balance sheet is shown in the Consolidated Balance Sheet in Appendix A. You will also find data relative to this problem on other pages of the
The financial statements of Green Mountain Coffee are presented in Appendix B, following the financial statements for Starbucks in Appendix A.\section*{Instructions}(a) Based on the information in
The September 4, 1995, issue of Fortune includes an article by Richard D. Hylton entitled "Stock Buybacks Are Hot-Here's How You Can Cash In."\section*{Instructions}Read the article and answer these
Minicase 1 Kellogg Company}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
In 1993 Marriott Corporation split into two companies: Host Marriott Corporation and Marriott International. Host Marriott retained ownership of the corporation's vast hotel and other properties,
The stockholders' meeting for Mantle Corporation has been in progress for some time. The chief financial officer for Mantle is presently reviewing the company's financial statements and is explaining
Diebold, Incorporated, is a world leader in financial self-service transaction systems, security products, and customer service. The company develops, manufactures,sells, and services automated
Barrister Information Systems Corp. develops, assembles, markets, and services computer systems and local area networks for law firms. Headquartered in Buffalo, New York, it has offices in 19 U.S.
Companies have a variety of options with regard to actions they can take concerning common stock and dividends. For example, a company can:(a) issue no cash dividend.(d) purchase treasury stock.(b)
Louis P. Brady, your uncle, is an inventor who has decided to incorporate. Uncle Lou knows that you are an accounting major at U.N.O. In a recent letter to you, he ends with the question, "I'm
The R\&D division of Simplex Chemical Corp. has just developed a chemical for sterilizing the vicious Brazilian "killer bees" which are invading Mexico and the southern United States. The president
Flambeau Corporation has paid 60 consecutive quarterly cash dividends ( 15 years). The last 6 months have been a real cash drain on the company, however, as profit margins have been greatly narrowed
Purpose: Most publicly traded companies are analyzed by numerous analysts. These analysts often don't agree about a company's future prospects. In this exercise you will find analysts' ratings about
Purpose: Use the stockholders' equity section of an annual report and identify the major components.Address: http://www.reportgallery.com Steps:1. From Report Gallery Homepage, choose Viewing
Hanes Company sells debt investments costing $26,000 for $28,000 plus accrued interest that has been recorded. In journalizing the sale, cred- its are: (a) Debt Investments and Loss on Sale of Debt
Which of these statements is not true? Consolidated financial statements are useful to: (a) determine the profitability of specific sub- sidiaries. (b) determine the aggregate profitability of en-
At the end of the first year of operations, the total cost of the trading securities portfolio is \(\$ 120,000\) and the total fair value is \(\$ 115,000\). What should the financial statements
In the balance sheet, Unrealized Loss-Equity is reported as a:(a) contra asset account.(b) contra stockholders' equity account.(c) loss in the income statement.(d) loss in the retained earnings
If a company wants to increase its reported income by manipulating its investment accounts, which should it do?(a) Sell its "winner" trading securities and hold its "loser" trading securities.(b)
Temporary debt investments must be readily marketable and be expected to be sold within:(a) 3 months from the date of purchase.(b) the next year or operating cycle, whichever is shorter.(c) the next
Ann Adler is confused about losses and gains on the sale of debt investments. Explain these issues to Ann:(a) How the gain or loss is computed(b) The statement presentation of gains and losses
Clio Company sells Cross's bonds that cost \(\$ 40,000\) for \(\$ 45,000\), including \(\$ 3,000\) of accrued interest. In recording the sale, Clio books a \(\$ 5,000\) gain. Is this correct? Explain.
To acquire Mega Corporation stock, R. L. Duran pays \(\$ 65,000\) in cash plus \(\$ 1,500\) broker's fees. What entry should be made for this investment, assuming the stock is readily marketable?
Malon Corporation uses the equity method to account for its ownership of \(35 \%\) of the common stock of Flynn Packing. During 1998 Flynn reported a net income of \(\$ 80,000\) and declares and pays
Wendy Walner is the controller of G-Products, Inc. At December 31 the company's investments in trading securities cost \(\$ 74,000\) and have a fair value of \(\$ 70,000\). Indicate how Wendy would
Using the data in question 13 , how would Wendy report the data if the investment were long-term and the securities were classified as available-for-sale?
Reo Company's investments in available-for-sale securities at December 31 show total cost of \(\$ 192,000\) and total fair value of \(\$ 210,000\). Prepare the adjusting entry.
\(\quad\) What purposes are served by reporting Unrealized Gains (Losses)-Equity in the stockholders' equity section?
Kirk Wholesale Supply owns stock in Xerox Corporation, which it intends to hold indefinitely because of some negative tax consequences if sold. Should the investment in Xerox be classified as a
Phelps Corporation purchased debt investments for \(\$ 41,500\) on January 1, 1998 . On July 1, 1998, Phelps received cash interest of \(\$ 2,075\). Journalize the purchase and the receipt of
On August 1 McLain Company buys 1,000 shares of ABC common stock for \(\$ 35,000\) cash plus brokerage fees of \(\$ 600\). On December 1 the stock investments are sold for \(\$ 38,000\) in cash.
Harmon Company owns 30\% of Hook Company. For the current year Hook reports net income of \(\$ 150,000\) and declares and pays a \(\$ 50,000\) cash dividend. Record Harmon's equity in Hook's net
Cost and fair value data for the trading securities of Michele Company at December 31,1998 , are \(\$ 62,000\) and \(\$ 59,000\), respectively. Prepare the adjusting entry to record the securities at
Duggen Corporation holds available-for-sale stock securities costing \(\$ 72,000\) as a long-term investment. At December 31, 1998, the fair value of the securities is \(\$ 65,000\). Prepare the
Saber Corporation has these long-term investments: common stock of Sword Co. (10\% ownership) held as available-for-sale securities, cost \(\$ 108,000\), fair value \(\$ 113,000\), common stock of
Piper Corporation had these transactions pertaining to debt investments\section*{Instructions}(a) Journalize the transactions.(b) Prepare the adjusting entry for the accrual of interest at December
Malea Company had these transactions pertaining to stock investments:\section*{Instructions}(a) Journalize the transactions.(b) Explain how dividend revenue and the gain (loss) on sale should be
McCormick Inc. had these transactions pertaining to investments in common stock:\section*{Instructions}Journalize the transactions. Jan. 1 Purchased 1,000 shares of Starr Corporation common stock
On January 1 Ranier Corporation purchased a \(25 \%\) equity investment in Bellingham Corporation for \(\$ 150,000\). At December 31 Bellingham declared and paid a \(\$ 60,000\) cash dividend and
These are two independent situations:1. Karen Cosmetics acquired \(10 \%\) of the 200,000 shares of common stock of Bell Fashion at a total cost of \(\$ 12\) per share on March 18, 1998. On June 30
At December 31, 1998, the trading securities for Nielson, Inc., are as
Data for investments in stock classified as trading securities are presented in E12-6. Assume instead that the investments are classified as available-for-sale securities with the same cost and fair
Felipe Company has these data at December 31, 1998:The available-for-sale securities are held as a long-term investment.\section*{Instructions}(a) Prepare the adjusting entries to report each class
The following transactions related to long-term bonds occurred for Lund Corporation:\section*{Instructions}(a) Journalize the transactions.(b) Assume that the fair value of the bonds at December 31,
In January 1998 the management of Reed Company concludes that it has sufficient cash to purchase some temporary investments in debt and stock securities. During the year, these transactions
On December 31, 1997, Harmony Associates owned the following securities that are held as long-term investments:On this date the total fair value of the securities was equal to its cost. The
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