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business
financial accounting information for decisions

Questions and Answers of Financial Accounting Information For Decisions

What type of an account is the Common Dividend Payable account?AppendixLO1
Who is intended to be protected by minimum legal capital?AppendixLO1
What is a premium on stock?AppendixLO1
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) Paid-In Capital in Excess
What is a proxy?AppendixLO1
Why is a corporation’s income said to be taxed twice?AppendixLO1
Which of the following is not a characteristic of the corporate form of business? (a) Ease of capital accumulation, (b) Stockholder responsibility for corporate debts, (c) Ease in transferability of
Record purchases and sales of treasury stock and the retirement of stock.AppendixLO1
Distribute dividends between common stock and preferred stock. (p. 453)AppendixLO1
Account for stock dividends and stock splits. (p. 450)AppendixLO1
Record transactions involving cash dividends. (p. 449)AppendixLO1
Record the issuance of corporate stock. (p. 446)AppendixLO1
Compute book value and explain its use in analysis.AppendixLO1
Compute dividend yield and explain its use in analysis. (p. 461)AppendixLO1
Compute price-earnings ratio and describe its use in analysis. (p. 461)AppendixLO1
Compute earnings per share and describe its use. (p. 460)AppendixLO1
Explain the items reported in retained earnings.AppendixLO1
Explain characteristics of common and preferred stock. (p. 453)AppendixLO1
Describe the components of stockholders’ equity. (p. 445)AppendixLO1
Identify characteristics of corporations and their organization. (p. 442)AppendixLO1
Algoma, Inc., signs a five-year lease for office equipment with Office Solutions. The present value of the lease payments is $15,499. Prepare the journal entry that Algoma records at the inception of
Madrid Company plans to issue 8% bonds on January 1, 2008, with a par value of $4,000,000. The company sells $3,600,000 of the bonds on January 1, 2008. The remaining $400,000 sells at par on March
Compute the debt-to-equity ratio for each of the following companies. Which company appears to have a riskier financing structure? Explain.Atlanta Company Spokane Company Total liabilities . . . . .
Enter the letter of the description A through H that best fits each term or phrase 1 through 8.A. Records and tracks the bondholders’ names.B. Is unsecured; backed only by the issuer’s credit
Murray Company borrows $340,000 cash from a bank and in return signs an installment note for five annual payments of equal amount, with the first payment due one year after the note is signed. Use
On January 1, 2008, the $2,000,000 par value bonds of Spitz Company with a carrying value of $2,000,000 are converted to 1,000,000 shares of $1.00 par value common stock. Record the entry for the
On July 1, 2008, Advocate Company exercises an $8,000 call option (plus par value) on its outstanding bonds that have a carrying value of $416,000 and par value of $400,000. The company exercises the
Using the bond details in both QS 10-1 and QS 10-2, confirm that the bonds’ selling prices given in each problem are approximately correct. Use the present value tables B.1 and B.3 in Appendix
Prepare the journal entry for the issuance of the bonds in both QS 10-1 and QS 10-2. Assume that both bonds are issued for cash on January 1, 2008.AppendixLO1
Garcia Company issues 10%, 15-year bonds with a par value of $240,000 and semiannual interest payments.On the issue date, the annual market rate for these bonds is 8%, which implies a selling price
Enviro Company issues 8%, 10-year bonds with a par value of $250,000 and semiannual interest payments.On the issue date, the annual market rate for these bonds is 10%, which implies a selling price
Describe the two basic types of pension plans.AppendixLO1
Compare and contrast an operating lease with a capital lease.AppendixLO1
When can a lease create both an asset and a liability for the lessee?AppendixLO1
Refer to the annual report for Apple in Appendix A. For the year ended September 25, 2004, did it raise more cash by issuing stock or debt?AppendixLO1
Refer to the statement of cash flows for Circuit City in Appendix A. For the year ended February 28, 2005, what was the amount of principal payments on long-term debt?AppendixLO1
Refer to Best Buy’s annual report in Appendix A. Is there any indication that Best Buy has issued bonds?AppendixLO1
What obligation does an entrepreneur (owner) have to investors that purchase bonds to finance the business?AppendixLO1
Describe the debt-to-equity ratio and explain how creditors and owners would use this ratio to evaluate a company’s risk.AppendixLO1
What is the issue price of a $2,000 bond sold at 981⁄4? What is the issue price of a $6,000 bond sold at 1011⁄2?AppendixLO1
If you know the par value of bonds, the contract rate, and the market rate, how do you compute the bonds’ price?AppendixLO1
Why does a company that issues bonds between interest dates collect accrued interest from the bonds’ purchasers?AppendixLO1
Does 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.AppendixLO1
What factors affect the market rates for bonds?AppendixLO1
What are the contract rate and the market rate for bonds?AppendixLO1
What is a bond indenture? What provisions are usually included in it?AppendixLO1
What are the duties of a trustee for bondholders?AppendixLO1
What is the advantage of issuing bonds instead of obtaining financing from the company’s owners?AppendixLO1
What is the main difference between notes payable and bonds payable?AppendixLO1
What is the main difference between a bond and a share of stock?AppendixLO1
A company issued 8-year, 5% bonds with a par value of$350,000. The company received proceeds of $373,745.Interest is payable semiannually. The amount of premium amortized for the first semiannual
A company issued 5-year, 5% bonds with a par value of$100,000. The company received $95,735 for the bonds. Using the straight-line method, the company’s interest expense for the first semiannual
A company issues 8%, 20-year bonds with a par value of$500,000. The current market rate for the bonds is 8%. The amount of interest owed to the bondholders for each semiannual interest payment is:a.
A bondholder that owns a $1,000, 6%, 15-year bond has:a. The right to receive $1,000 at maturity.b. Ownership rights in the bond issuing entity.c. The right to receive $60 per month until maturity.d.
A bond traded at 971⁄2 means that:a. The bond pays 971⁄2% interest.b. The bond trades at $975 per $1,000 bond.c. The market rate of interest is below the contract rate of interest for the bond.d.
The issuer records the first semiannual interest payment on July 1 with (a) a debit to Interest Payable for $15,000, (b) a debit to Bond Interest Expense for $22,500, or (c) a credit to Interest
The bonds are sold at par plus interest accrued since January AppendixLO1
On May 1, a company sells 9% bonds with a $500,000 par value that pay semiannual interest on each January 1 and July AppendixLO1
Suppose a company has an option to pay either (a) $10,000 after one year or (b) $5,000 after six months and another $5,000 after one year. Which choice has the lower present value?AppendixLO1
A company enters into an agreement to make four annual year-end payments of $1,000 each, starting one year from now. The annual interest rate is 8%. The present value of these four payments is (a)
When a borrower records an interest payment on an installment note, how are the balance sheet and income statement affected?AppendixLO1
How is the interest portion of an installment note payment computed?AppendixLO1
Which of the following is true for an installment note requiring a series of equal total cash payments? (a) Payments consist of increasing interest and decreasing principal; (b) Payments consist of
Six years ago, a company issued $500,000 of 6%, eight-year bonds at a price of 95. The current carrying value is $493,750. The company decides to retire 50% of these bonds by buying them on the open
How are these bonds reported in the long-term liability section of the issuer’s balance sheet as of December 31, 2008?On December 31, 2007, a company issues 16%, 10-year bonds with a par value of
Using the straight-line method to allocate bond interest expense, the issuer records the second interest payment (on December 31, 2008) with a debit to Premium on Bonds Payable in the amount of (a)
Are these bonds issued at a discount or a premium? Explain your answer.On December 31, 2007, a company issues 16%, 10-year bonds with a par value of $100,000. Interest is paid on June 30 and December
What is the amount of bond interest expense recorded at the first semiannual period using the straight-line method?Five-year, 6% bonds with a $100,000 par value are issued at a price of $91,893.
What is the issuer’s journal entry to record the issuance of these bonds?Five-year, 6% bonds with a $100,000 par value are issued at a price of $91,893. Interest is paid semiannually, and the
Are these bonds issued at a discount or a premium? Explain your answer.Five-year, 6% bonds with a $100,000 par value are issued at a price of $91,893. Interest is paid semiannually, and the bonds’
When the contract rate is above the market rate, do bonds sell at a premium or a discount? Do purchasers pay more or less than the par value of the bonds?AppendixLO1
How do you compute the amount of interest a bond issuer pays in cash each year?AppendixLO1
Unsecured bonds backed only by the issuer’s general credit standing are called (a) serial bonds,(b) debentures, (c) registered bonds, or (d) convertible bonds.AppendixLO1
Prepare entries to account for notes.AppendixLO1
Record the retirement of bonds. (p. 409)AppendixLO1
Compute and record amortization of bond premium. (p. 406)AppendixLO1
Compute and record amortization of bond discount. (p. 403)AppendixLO1
Prepare entries to record bond issuance and bond interest expense. (p. 402)AppendixLO1
Compute the debt-to-equity ratio and explain its use.AppendixLO1
Assess debt features and their implications. (p. 413)AppendixLO1
Compare bond financing with stock financing. (p. 400)AppendixLO1
Appendix 10D—Describe accounting for leases and pensions.AppendixLO1
Appendix 10C—Describe the accrual of bond interest when bond payments do not align with accounting periods.(p. 421)AppendixLO1
Appendix 10A—Explain and compute the present value of an amount(s) to be paid at a future date(s). (p. 417)AppendixLO1
Explain the types and payment patterns of notes. (p. 410)AppendixLO1
At the end of May, the sales journal of Mountain View appears as follows.Sales Journal Date Account Debited Invoice Number PR Cost of Goods Sold Dr.Inventory Cr.Accounts Receivable Dr.Sales Cr.May 6
Houst Pharmacy uses the following journals: sales journal, purchases journal, cash receipts journal, cash disbursements journal, and general journal. On June 5, Houst purchased merchandise priced at
Prepare headings for a cash disbursements journal like the one in Exhibit E-A.4. Journalize the April transactions from Exercise E-10 that should be recorded in the cash disbursements journal
Refer to Exercise E-10 and for each of the April transactions identify the journal in which it would be recorded. Assume the company uses a sales journal, purchases journal, cash receipts journal,
Marx Supply uses a sales journal, a purchases journal, a cash receipts journal, a cash disbursements journal, and a general journal. The following transactions occur in the month of April.Apr. 3
Prepare headings for a purchases journal like the one in Exhibit E-A.3. Journalize the June transactions from Exercise E-7 that should be recorded in the purchases journal assuming the periodic
Refer to Exercise E-7 and for each of the June transactions identify the journal in which it would be recorded. Assume the company uses a sales journal, purchases journal, cash receipts journal, cash
Alivan Company uses a sales journal, a purchases journal, a cash receipts journal, a cash disbursements journal, and a general journal. The following transactions occur in the month of June.June 1
Prepare headings for a cash receipts journal like the one in Exhibit E-A.2. Journalize the November transactions shown in Exercise E-4 that should be recorded in the cash receipts journal assuming
Refer to Exercise E-4 and for each of the November transactions identify the journal in which it would be recorded. Assume the company uses a sales journal, purchases journal, cash receipts journal,
Ali Co. uses a sales journal, a purchases journal, a cash receipts journal, a cash disbursements journal, and a general journal. The following transactions occur in the month of November.Nov. 3
Prepare headings for a sales journal like the one in Exhibit E-A.1. Journalize the March transactions shown in Exercise E-1 that should be recorded in the sales journal assuming that the periodic
Refer to Exercise E-1 and for each of the March transactions identify the journal in which it would be recorded. Assume the company uses a sales journal, purchases journal, cash receipts journal,
Finer Company uses a sales journal, a purchases journal, a cash receipts journal, a cash disbursement journal, and a general journal. The following transactions occur in the month of March.Mar. 2
Apple reports the following income (and average assets in parentheses) for each of its geographic segments—$ millions: Americas, $465 ($529); Europe, $280 ($256); and Japan, $115 ($122). Apple also

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