Questions and Answers of Fundamental Managerial Accounting Concepts 10th

Financial Statement Analysis The comparative income statements and balance sheets for Montana Corporation for the years ending December 31, 2009 and 2008, are given here.Required:Prepare a
Why Companies Invest in Other Companies Which one of the following is not a primary reason companies invest in other companies?a To earn return on excess cash.b. To eliminate risk in other
Classifying a Security Which one of the following types of investments is always an example of a debt security?a. Available-for-sale securities.b. Trading securities.c. Held-to-maturity securities.d.
Equity Method Securities What is the general rule for what percentage an entity must own in another company to account for the investment using the equity method?a. The entity should own 20 to 50% of
Disclosure of Securities Which two of the following classifications of securities are valued at fair value on a company’s balance sheet?a. Available-for-sale securities.b. Equity method
Accounting for the Purchase of Trading and Available-for-Sale Securities The company purchased the following securities with cash:Make the necessary journal entry(ies) to record the purchase of these
Accounting for the Return Earned on an Investment Refer to the data in PE 12-5. The company received the following interest and dividends from its securities investments during the year:Make the
Accounting for the Sale of Securities Refer to the data in PE 12-5. Near the end of the year, the company sold Security 1 for $25,200. Make the necessary journal entry(ies) to record the sale.
Changes in Value of Trading Securities At the end of the year, the company had the following securities:Make the necessary journal entry(ies) to record the change in value of the company’s trading
Changes in Value of Available-for-Sale Securities Refer to the data in PE 12-8. Make the necessary journal entry(ies) to record the change in value of the company’s available-for-sale securities.
Subsequent Changes in Value of Trading Securities At the end of year 2, the company owned the following security (which was originally purchased for $41,600 and had a market value at the end of year
Computing the Value of Held-to-Maturity Securities On January 1, 2009, the company purchased thirty $1,000 held-to-maturity bonds of another company. The bonds mature in four years from the date of
Accounting for the Initial Purchase of Held-to-Maturity Securities Using the information from PE 12-11, make the necessary journal entry to record the purchase of this held-to-maturity security.
Straight-Line Amortization of Bond Discounts The company purchased $40,000, 10%, three-year bonds for $35,939. Interest on the bonds is payable semiannually. Using straight-line amortization of the
Straight-Line Amortization of Bond Premiums The company purchased $65,000, 10%, three-year bonds for $68,407.39. Interest on the bonds is payable semiannually. Using straight-line amortization of the
Effective-Interest Amortization of Bond Premiums Refer to the data in PE 12-14. Using the effective-interest method of bond premium amortization, make the necessary journal entries to record the
Accounting for the Sale of Bond Investments Refer to the data in PE 12-14 and 12-15. The company decided to sell the bonds for $67,000 immediately after receiving the second interest payment. Make
Accounting for Investments Using the Equity Method Manwill Company owns 40% (30,000 shares) of Hall Company’s voting stock. Since Manwill has a significant interest in Hall Company, it uses the
Consolidated Financial Statements Parent Company owns 90% of the outstanding stock of Sub Company. At the end of the year, Sub Company reports revenues of $1,000 and expenses of $850. What will
Investment in Trading Securities—Journal Entries Prepare the journal entries to account for the following investment transactions of Samuelson Company:2008 July 1 Purchased 350 shares of Bateman
Investment in Trading Securities—Journal Entries In June 2009, Hatch Company had no investment securities but had excess cash that would not be needed for nine months. Management decided to use
Investment in Available-for-Sale Securities—Journal Entries Bird Beak Corporation made the following available-for-sale securities transactions:Jan. 14 Purchased 4,000 shares of Pinegar Corporation
Investment in Securities In January 2007, Solitron, Inc., determined that it had excess cash on hand and decided to invest in Horner Company stock. The company intends to hold the stock for a period
Investment in Equity Securities During 2007, Riverbend Company purchased trading securities as a short-term investment.The costs of the securities and their market values on December 31, 2009, are
Investment in Debt and Equity Securities In February 2009, Packard Corporation purchased the following securities. Prior to these purchases, Packard had no portfolio of investment securities.During
Investment in Debt and Equity Securities Andrews, Inc., purchased the following securities during 2009:During 2009, Andrews received interest of $1,400 and dividends of $600 on its investments.On
Investment in Securities—Changes in Value Sharp, Inc., had the following portfolio of investment securities on January 1, 2009:Appropriate adjustments have been made in prior years. No securities
Investment in Securities—Changes in Value Indonesia, Inc., held the following portfolio of securities on December 31, 2008 (the end of its first year of operations):No additional securities were
Accounting for the Purchase of Securities The Running Store is a chain of sporting goods stores. The Running Store is interested in using some of its excess cash to invest in securities. It decides
Accounting for the Sale of Securities Shay Company owns the following securities, which it is interested in selling:Prepare the journal entry to record the sale of these securities. Security Cost
Held-to-Maturity Security Price Determination 1. How much should an investor pay for $100,000 of debenture bonds that pay interest every six months at an annual rate of 8%, assuming that the bonds
Held-to-Maturity Security Price Determination McMinville Corporation has decided to purchase bonds of La Verkin Corporation as a long-term investment. The 10-year bonds have a stated rate of interest
Investments in Held-to-Maturity Securities Control Group purchased thirty $1,000, 10%, 20-year bonds of Natchez Corporation on January 1, 2009, as a long-term investment. The bonds mature on January
Straight-Line Amortization of Premium On their issuance date, Salina Company purchased thirty-five $1,000, 10%, six-year bonds of AF Corporation as a long-term investment for $38,285. Interest
Effective-Interest Amortization of Premium Assume the same facts as in E 12-33. Prepare a schedule showing the amortization of the bond premium over the six-year life of the bonds. Use the
Investments in Stock—Equity Method On January 3, 2009, Jorgenson, Inc., purchased 30,000 shares of the outstanding common stock of Horace Corporation. At the time of this transaction, Horace has
Equity Method Foster Enterprises purchased 20% of the outstanding common stock of Novelties, Inc., on January 2, 2009, paying $150,000. During 2009, Novelties, Inc., reported net income of$20,000 and
Investments in Stock—Equity Method During 2009, Genco Corporation purchased 10,000 shares of Wiener Company stock for $85 per share. Wiener had a total of 40,000 shares of stock outstanding.1.
Consolidated Financial Statements—Balance Sheet Ecotec Inc. purchased 70% of the outstanding common stock of Beatrix Co. on January 1, 2007, paying $875,000. On that day, the balance sheets of the
Consolidated Financial Statements—Income Statement On January 1, 2007, Limbo Inc. purchased 80% of the outstanding common stock of Euphoria Co. at a price of $960,000. At the end of 2007, each
Investment in Securities—Recording and Analysis The following data pertain to the securities of Linford Company during 2009, the company’s first year of operations:a. Purchased 400 shares of
Buying and Selling Trading Securities Iron Company incurred the following transactions relating to the common stock of Bronze Company:July 14, 2007 Purchased 12,000 shares at $41 per share.Sept. 4,
Trading and Available-for-Sale Securities Lorien Technologies, Inc., purchased the following securities during 2008:The following transactions occurred during 2009:a. On January 1, 2009, Lorien
Investments in Trading Securities In December 2009, the treasurer of Toth Company concluded that the company had excess cash on hand and decided to invest in Soren Corporation stock. The company
Investments in Debt and Equity Securities Wilbur Company often invests in the debt and equity securities of other companies as shortterm investments. During 2009, the following events occurred:July 1
Unifying Concepts: Short-Term Investments in Stocks and Bonds JAG Manufacturing Company produces and sells one main product. There is significant seasonality in demand, and the unit price is quite
Recording Investment Transactions The following data pertain to the investments of Sumner Company during 2009, the company’s first year of operations:a. Purchased 200 shares of Corporation A stock
Investments in Available-for-Sale Securities Lindorf Company often purchases common stocks of other companies as long-term investments.At the end of 2008, Lindorf held the common stocks listed.
Unifying Concepts: Investments in Debt and Equity Securities On January 1, Heiress Company had surplus cash and decided to make some long-term investments.The following transactions occurred during
Investments in Equity Securities On March 15, 2009, Boston Company acquired 5,000 shares of Richfield Corporation common stock at $45 per share as a long-term investment. Richfield has 50,000 shares
Investment Portfolio General Corporation has the following investments in equity securities at December 31, 2008 (there are no existing balances in the market adjustment account):Required:1. Prepare
Investments in Held-to-Maturity Securities Eysser Corporation purchased $50,000 of Hillside Construction Company’s 10% bonds at 1031⁄ 3 plus accrued interest on February 1, 2008. The bonds mature
Investments in Held-to-Maturity Securities On January 1, 2009, Eurowest Company purchased a $25,000, 12% bond at 104 as a longterm investment. The bond pays interest annually on each December 31 and
Determining the Purchase Price of Held-to-Maturity Securities and Effective-Interest Amortization Corbett Corporation decided to purchase twenty $1,000, 10%, six-year bonds of Texas Manufacturing
Investments in Held-to-Maturity Securities Walsh Equipment Company made the following purchases of debt securities during 2009.All are classified as held-to-maturity, and all pay interest
Long-Term Investments in Equity Securities Century Corporation acquired 8,400 common shares of Fidelity Company on January 10, 2009, for $12 per share and acquired 15,000 common shares of Essem
Investments in Stocks—Equity Method On March 20, 2009, Reeder Company acquired 80,000 shares of Needed Industries common stock at $32 per share as a long-term investment. Needed has 200,000 shares
Long-Term Investments in Stock—Available-for-Sale and Equity Method The following activities relate to Merrill Company during the years 2008 and 2009:2008 Feb. 15 Merrill purchased 10,000 shares of
Long-Term Investments in Equity Securities During January 2009, Danbury, Inc., acquired 40,000 shares of Corporation A common stock for $24 per share. In addition, it purchased 5,000 shares of
Unifying Concepts: Long-Term Investments in Stocks and Bonds On January 2, 2009, Drexello, Inc., purchased $75,000 of 10%, five-year bonds of Greasy Trucking as a held-to-maturity security at a price
Consolidated Financial Statements Parent Company owns parts of three different subsidiaries. The balance sheets and income statements for these four companies are listed below. Note that, in the
Which Investment Should We Make?Pentron Data Corporation has a significant amount of excess cash on hand and has decided to make a long-term investment in either debt or equity securities. After a
Classification of Securities Memphis Company has just purchased five securities; it intends to hold the stock until the price increases to a sufficiently high level, at which time it plans to sell
You Decide: Should the trading securities that companies own be left on the books at historical cost, or should they be adjusted annually to their current market price (as is now required by
Microsoft(Since Wal-Mart doesn’t report investments activity, we will refer to Microsoft’s 2005 annual report for the case.) Locate Microsoft’s 2005 annual report at http://www.microsoft.com to
Berkshire Hathaway The following note comes from the 2005 annual report of Berkshire Hathaway:(6) Investments in equity securities Data with respect to investments in equity securities are shown
Sony Sony Corporation was organized in 1946 under the name Tokyo Tsushin Kogyo. The name “Sony” is a combination of the Latin word sonus (sound) and the English word sonny;it was given to a small
Is It OK to Strategically Classify Securities?You have recently been hired as a staff assistant in the office of the chairman of the board of directors of Clefton, Inc. Because you have some
Why Doesn’t the Gain Go on the Income Statement?You are the controller for Chong Lai Company. You just received a very strongly worded e-mail message from the president of the company. The
Adding an Investment Portfolio This spreadsheet assignment is a continuation of the spreadsheet assignments given in earlier chapters. If you completed those spreadsheets, you have a head start on
Investments in Debt and Equity Securities On January 1, 2009, Schultz, Inc., purchased the following securities:On March 31, one-half of Security 2 was sold for $900. During the year, interest and
Characteristics of Proprietorships and Partnerships Which one of the following is not a usual characteristic of either a proprietorship or a partnership?a. Limited size.b. Limited life.c. Ease of
Characteristics of Corporations Which one of the following is not a usual characteristic of a corporation?a. Limited liability.b. Limited life.c. Close government regulation.d. Easy transferability
Characteristics of Common Stock and Preferred Stock Which one of the following statements is true regarding common stock and preferred stock?a. Preferred stockholders always have the right to vote in
Issuance of No-Par Common Stock The company issued 5,000 shares of no-par common stock at $25 per share for cash. Make the necessary journal entry(ies) to record this transaction.
Issuance of Common Stock for Cash The company issued 3,000 shares of $1 par-value common stock for $40 per share for cash.Make the necessary journal entry(ies) to record this transaction.
Issuance of Common Stock for Other Assets The company issued 7,200 shares of $1 par-value common stock in exchange for a building.The market value of the stock at the date of the exchange was $30 per
Accounting for Stock Repurchases The company repurchased 1,500 shares of $1 par-value common stock for $32 per share from the open market. Make the necessary journal entry(ies) to record this
Accounting for Sale of Treasury Stock at Price Higher than Cost Refer to the data in PE 11-7. The company resells 400 shares of treasury stock for $40 per share. Make the necessary journal entry(ies)
Accounting for Sale of Treasury Stock at Price Lower than Cost Refer to the data in PE 11-7 and PE 11-8. The company resells 300 shares of treasury stock for $28 per share. Make the necessary journal
Accounting for Sale of Treasury Stock at Price Lower than Cost Refer to the data in PE 11-7 through PE 11-9. The paid-in capital, treasury stock account currently has a $2,500 credit balance. The
Dividend Declaration Accounting The company has the following two types of stock:1. 2,000 shares of 10% cumulative preferred stock with a $20 par value.2. 5,000 shares of common stock with a $1 par
Dividend Payment Accounting Refer to the data in PE 11-11. Make the necessary journal entry(ies) to record the payment of the cash dividend.
Dividend Closing Entry(ies)Refer to the data in PE 11-11. Make the necessary journal entry(ies) to close the dividend accounts to retained earnings at the end of the year.
Dividend Payout Ratio Using the following data, compute the dividend payout ratio. Cash dividends Sales Net income 19,000 512,000 76,000
Balance Sheet Preparation Using the following data, prepare a statement of stockholders’ equity for the company. Paid-in capital in excess of par, common stock Retained earnings Common stock ($1
Statement of Comprehensive Income Using the following items, compute the company’s comprehensive income.1. The company’s investment in a foreign subsidiary increased by $4,000 because the Euro
Issuance of Stock Brockbank Corporation was organized on July 15, 2009. Record the journal entries for Brockbank to account for the following:a. The state authorized 30,000 shares of 7% preferred
No-Par Stock Transactions Harmsen Maintenance Corporation was organized in early 2009 with 60,000 shares of no-par common stock authorized. During 2009, the following transactions occurred:a. Issued
Treasury Stock Transactions Provide the necessary journal entries to record the following:a. Washington Corporation was granted a charter authorizing the issuance of 200,000 shares of $10 par-value
Stock Issuance and Cash Dividends Lindstrom Corporation was organized in January 2009. The state authorized 200,000 shares of no-par common stock and 75,000 shares of 8%, $24 par, preferred stock.
Stock Issuance, Treasury Stock, and Dividends On January 1, 2009, Vaness Corporation was granted a charter authorizing the following capital stock: common stock, $5 par, 200,000 shares; preferred
Stock Issuance, Treasury Stock, and Dividends On January 1, 2009, Snow Company was authorized to issue 100,000 shares of common stock, par value $10 per share and 10,000 shares of 8% preferred stock,
Stock Transactions and Dividends Fowler Corporation was organized in January 2009. The state authorized 150,000 shares of no-par common stock and 50,000 shares of 12%, $8 par, preferred stock. Record
Dividend Calculations On January 1, 2009, Oldroyd Corporation had 130,000 shares of common stock issued and outstanding. During 2009, the following transactions occurred (in chronological order):a.
Dividend Calculations Churchill Corporation has the following stock outstandingFor the two independent cases that follow, compute the amount of dividends that would be paid to preferred and common
Stock Issuance, Treasury Stock, and Dividends During 2009, Doxey Corporation had the following transactions and related events:Jan. 15 Issued 6,500 shares of common stock at par ($16 per share),
Dividend Payout Ratio The following numbers are for three different companies:For each company, compute the dividend payout ratio. Total assets Cash dividends Total liabilities Net income A B C
Analysis of Stockholders’ Equity The stockholders’ equity section of Kay Corporation at the end of the current year showed:1. What is the dollar amount to be reported for preferred stock?2. What
Preparing the Stockholders’ Equity Section The following account balances, before any closing entries, appear on the books of Spring Company as of December 31, 2009:Based on these account balances,

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