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financial accounting information for decisions

Questions and Answers of Financial Accounting Information For Decisions

What are the duties of a trustee for bondholders?
What is the advantage of issuing bonds instead of obtain¬ing financing from the company’s owners?
What is a bond indenture? What provisions are usually included in it?
What are the contract rate and the market rate for bonds?
What factors affect the market rates for bonds?
BDoes the straight-line or effective interest method produce an interest expense allocation that yields a constant rate of interest over a bond’s life? Explain.
Why does a company that issues bonds between interest dates collect accrued interest from the bonds’ purchasers?
What is the issue price of a $2,000 bond sold at 9814? What is the issue price of a $6,000 bond sold at IOF/2?
Describe two common payment patterns for installment notes.
Explain why unsecured creditors are concerned when the pledged assets to secured liabilities ratio for a borrower increases.
What obligation does an entrepreneur (owner) have to in¬vestors that purchase bonds to finance the business?
Refer to Krispy Kreme’s annual report in Appendix A. Is there any indication that Krispy Kreme has issued bonds?
Refer to the statement of cash flows for Tastykake in Appendix A. For the year ended December 28, 2002, what is its “Net borrowings (payments)of long-term debt”?
Refer to the annual report for Harley- HarleyDavidson in Appendix A. For the year ended Davidson December 31, 2002, did it raise more cash by issuing stock or debt?
cWhen can a lease create both an asset and a liability for the lessee?
cCompare and contrast an operating lease with a capital lease.
cDescribe the two basic types of pension plans.
If you know the par value of bonds, the contract rate, and the market rate, how do you compute the bonds’ price?
Enter the letter of the description A through H that best fits each term 1 through 8. A. Records and tracks the bondholders' names. B. Is unsecured; backed only by the issuer's credit standing. C.
Sanchez issues 10%, 15-year bonds with a par value of $120,000 and semiannual interest payments.On the issue date, the annual market rate for these bonds is 8%, which implies a selling price of
Prepare the journal entry for the issuance of the bonds in both QS 10-2 and QS 10-3. Assume that both bonds are issued for cash on January 1, 2005.
Using the bond details in both QS 10-2 and QS 10-3, confirm that the bonds’ selling prices given in each problem are approximately correct. Use the present value tables B.l and B.3 in Appendix B.
Gooden Company plans to issue 8% bonds on January 1, 2005, with a par value of $2,000,000. The company sells $1,800,000 of the bonds on January 1, 2005. The remaining $200,000 sells at par on March
On July 1, 2005, Taurasi Company exercises a $5,000 call option (plus par value) on its outstanding bonds that have a carrying value of $208,000 and par value of $200,000. The company exercises the
On January 1, 2005, the $1,000,000 par value bonds of Gruden Company with a carrying value of$1,000,000 are converted to 500,000 shares of $0.50 par value common stock. Record the entry for the
Valdez Company borrows $170,000 cash from a bank and in return signs an installment note for five annual payments of equal amount, with theHifst payment due one year after the note is signed. Use
Note 2 of Collins Industries’ annual report states: “The credit facility [line] is collateralized by re¬ceivables, inventories, equipment and certain real property. Under the terms of the
Compute the ratio of pledged assets to secured liabilities for the following two companies. Which company appears to have the riskier secured liabilities? 2 Pledged assets Xiang Co. $387,000 Xu Co.
Lauren Wright, an employee of ETrain.com, leases a car at O’Hare airport for a three-day business QS I 0-1 2C trip. The rental cost is $350. Prepare the entry by ETrain.com to record Lauren’s
Juicyfruit, Inc., signs a five-year lease for office equipment with Office Solutions. The present value QS I 0— I 3c of the lease payments is $20,859. Prepare the journal entry that Juicyfruit
What is the difference between R and Ru? How arethese two related?
On January 1, 2005, Kidman Enterprises issues bonds that have a $1,700,000 par value, mature in 20 years, and pay 9% interest semiannually on June 30 and December 31. The bonds are sold at par.
ACT issues bonds with a par value of $90,000 on January 1, 2005. The annual contract rate on them is 8%, and interest is paid semiannually on June 30 and December 31. The bonds mature in three years.
Welch Company issues bonds dated January 1, 2005, with a par value of $250,000. The annual con¬tract rate on them is 9%, and interest is paid semiannually on June 30 and December 31. The bonds
Prairie Dunes Company issues bonds dated January 1, 2004, with a par value of $800,000. The anStraight-line amortization of nual contract rate is 13%, and interest is paid semiannually on June 30 and
Refer to the bond details in Exercise 10-4 and prepare an amortization table like the one in Exhibit Effective interest amortization of 10B.2 for these bonds using the effective interest method to
Jester Company issues bonds with a par value of $600,000 on their stated issue date. The bonds ma¬ture in 10 years and pay 6% annual interest in semiannual payments. On the issue date, the annual
Metro, Inc., issues bonds with a par value of $75,000 on their stated issue date. The bonds mature in five years and pay 10% annual interest in semiannual payments. On the issue date, the annual
On January 1, 2004, Steadman issues $350,000 of 10%, 15-year bonds at a price of 9714. Six years later, on January 1, 2010, Steadman retires 20% of these bonds by buying them on the open market at
On May 1, 2005, Kidman Enterprises issues bonds dated January 1, 2005, that have a $1,700,000 par Recording bond issuance with value, mature in 20 years, and pay 9% interest semiannually on June 30
Simon issues four-year bonds with a $50,000 par value on June 1, 2004, at a price of $47,974. The annual contract rate is 7%, and interest is paid semiannually on November 30 and May 31.1. Prepare an
On January 1, 2005, Perez borrows $25,000 cash by signing a four-year, 7% installment note that re¬quires annual payments of accrued interest and equal amounts of principal on December 31 of each
Use the information in Exercise 10-11 to prepare the journal entries for Perez to record the loan on January 1, 2005, and the four payments from December 31, 2005, through December 31, 2008.Exercise
On January 1, 2005, Randa borrows $25,000 cash by signing a four-year, 7% installment note. The note requires foimeqqal total payments of accrued interest and principal on December 31 of each year
Use the information in Exercise 10-13 to prepare the journal entries for Randa to record the loan on Exercise 10-14 January 1, 2005, and the four payments from December 31, 2005, through December 31,
An unsecured creditor ofTelnet Co. is monitoring Telnet’s financing activities. Two years ago, Telnet’s ratio of pledged assets to secured liabilities was 1.7. One year ago, the ratio climbed to
Indicate whether the company in each separate case 1 through 3 has entered into an operating lease or a capital lease.1. The lessor retains title to the asset, and the lease term is three years on an
Flyer (lessee) signs a five-year capital lease for office equipment with a $20,000 annual lease pay¬ment. The present value of the five annual lease payments is $82,000, based on a 7% interest
General Motors advertised three alternatives for a 25-month lease on a new Blazer: (1) zero dollars down and a lease payment of $1,750 per month for 25 months, (2) $5,000 down and $1,500 per month
Which of the following is not a characteristic of the corporate form of business? (a) Ease of capital accumulation, (5) Stockholder responsibility for corporate debts, (c) Ease in transferability of
Why is a corporation’s income said to be taxed twice?
What is a proxy?
A company issues 7,000 shares of its $10 par value common stock in exchange for equipment valued at $105,000. The entry to record this transaction includes a credit to(a) Contributed Capital in
What is a premium on stock?
Who is intended to be protected by minimum legal capital?
In what ways does preferred stock often have priority over common stock?
Increasing the return to common stockholders by issuing preferred stock is an example of(a) Financial leverage, (b) Cumulative earnings, (c) Dividend in arrears.
A corporation has issued and outstanding (i) 9,000 shares of $50 par value, 10% cumulative, nonparticipating preferred stock and (ii) 27,000 shares of $10 par value common stock.No dividends have
What type of an account is the Common Dividend Payable account?
What three crucial dates are involved in the process of paying a cash dividend?
When does a dividend become a company’s legal obligation?
How does a stock dividend impact assets and retained earnings?
What distinguishes a large stock dividend from a small stock dividend?
What amount of retained earnings is capitalized for a small stock dividend.
Purchase of treasury stock (a) has no effect on assets; (b) reduces total assets and total equity by equal amounts; or (c) is recorded with a debit to Retained Earnings.
Southern Co. purchases shares of Northern Corp. Should either company classify these shares as treasury stock?
How does treasury stock affect the authorized, issued, and outstanding shares?
When a company purchases treasury stock, (a) retained earnings are restricted by the amount paid; (b) Retained Earnings is credited; or (c) it is retired.
Which of the following is an extraordinary item? (a) a settlement paid to a customer injured while using the company’s product, (b) a loss to a plant from damages caused by a meteorite, or (c) a
Identify the five major sections of an income statement that are potentially reported.
A company using FIFO for the past 15 years decides to switch to LIFO.The effect of this event on prior years’ net income is (a) reported as a prior period adjustment to retained earnings; (b)
FDI reports 2005 net income of $250,000 and pays preferred dividends of $70,000. On January I, 2005, FDI had 25,000 outstanding common shares, and it purchased 5,000 treasury shares on July I. Its
Flow are stock splits and stock dividends treated in computing the weighted-average number of outstanding common shares?
What EPS figures are reported for a complex capital structure company?
What are organization expenses? Provide examples.
How are organization expenses reported?
Who is responsible for directing a corporation's affairs?
What is the preemptive right of common stockholders?
List the general rights of common stockholders.
Why would an investor find convertible preferred stock attractive?
What is the difference between the par value and the call price of a share of preferred stock?
Identify and explain the importance of the three dates rele- vant to corporate dividends.
Why is the term liquidating dividend used to describe cash dividends debited against contributed capital accounts?
How does declaring a stock dividend affect the corporation's assets, liabilities, and total equity? What effects does the eventual distribution of the stock have?
What is the difference between a stock dividend and a stock split?
Courts have ruled that a stock dividend is not taxable income to stockholders. What justifies this decision?
How does the purchase of treasury stock affect the pur- chaser's assets and total equity?
Why do laws place limits on treasury stock purchases?
Where on the income statement does a company report an unusual gain not expected to occur more often than once every two years?
After taking five years of straight-line depreciation expense for an asset that was expected to have an eight-year useful life, a company decides that the asset will last six more years. Is this
How are EPS results computed for a corporation with a sim- ple capital structure?
Review the balance sheet for Krispy Kreme in Appendix A and determine the classes of stock that it has issued. Krispy Kreme TASTYKAKE
Refer to the balance sheet for Tastykake in Appendix A. What is the par value of its com- mon stock? Suggest a rationale for the amount of par value it assigned.
Refer to the financial statements for Tastykake TASTYKAKE in Appendix A. How many treasury stock shares does it report as of December 28, 2002? Compute the average cost per treasury share.
Refer to the financial statements for Harley- Davidson in Appendix A. Was it a net seller or Harley- Davidson net purchaser of treasury stock for the fiscal year ended December 31, 2002? Explain.
Prepare adjusting journal entries for the year ended (or date of) December 31, 2005, for each of these separate situations. Assume that prepaid expenses are initially recorded in asset accounts. Also
The following three separate situations require adjusting journal entries to prepare financial statements as of April 30. For each situation, present both the April 30 adjusting entry and the
The following adjusted trial balance contains the accounts and balances of Showers Company as of December 31, 2005, the end of its fiscal year. (1) Prepare the December 31, 2005, closing entries for
Use the following information to compute profit margin for each separate company a through e: l01Which of the five companies is the most profitable according to the profit margin ratio? Interpret
Calculate the current ratio in each of the following separate cases. Identify the company case with the strongest liquidity position. (These cases represent competing companies in the same industry.)

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