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fundamentals financial accounting

Questions and Answers of Fundamentals Financial Accounting

On June 1. 2006. Hopkins Corp. issued $1,000,000. 8%. 5-year bonds at face value. The bonds were dated June 1. 2006, and pay interest semiannually on June 1 and December I. Financial statements are
Formosa Co. sold $400,000. 9%. 10-year bonds on January 1, 2006. The bonds were dated January 1. and interest is paid on January 1 and July l.The bonds were sold at 105.Instructions(a) Prepare the
Otto Electronics issues an $800,000, 8%, 10-year mortgage note on December 31, 2006, to help finance a plant expansion program. The terms provide for semiannual installment payments, not including
On July 1. 2006. Kingston Satellites issued $3,600,000 face value, 9%, 10-year bonds at $3,375,680. This'price resulted in an effective-interest rate of 10% on the bonds. Kingston uses the
On July 1. 2006. S. Strigel Chemical Company issued $5,000,000 face value. 10%. 10-year bonds at $5,679,533. This price resulted in an 8% effective-interest rate on the bonds.Strigel uses the
Travis Company sold $2,000,000, 9%, 20-year bonds on January 1. 2006. The bonds were dated January 1. 2006, and pay interest on January 1 and July L.Travis Company uses the straight line method to
Guehler Corporation sold $3,000,000, 8%, LO-year bond- on January 1. 2006. The bonds were dated January 1, 2006, and pay interest on July I and January 1 Guehler Corporation uses the straight-line
The following is taken from the Jaggar Corp. balance sheet.Interest is payable semiannually on January 1 and July l.The bonds are callable on any semiannual interest date. Jaggar uses straight-line
On January 2006. the ledger of Zaur Company contains the following liability accounts.During January the following selected transactions occurred.Jan. 5 Sold merchandise for cash totaling $17,280.
On May 1. 2006, Sator Corp. issued $800,000, 9%, 5-year bonds at face value. The bonds were dated May 1. 2006. and pay interest semiannually on May 1 and November 1. Financial statements are prepared
Hornung Electric sold $300,000, 10%. 10-year bonds on January 1. 2006. The bonds were dated January 1 and paid interest on January 1 and July l.The bonds were sold at 104.Instructions(a) Prepare the
Hamilton Electronics issues a $600,000. 8%, 10-year mortgage note on December 31.2005. The proceeds from the note are to be used in financing a new research laboratory. The terms of the note provide
On July 1. 2006. Clintin Corporation issued $4,000,000 face value. 10%. 10-year bonds at $4,543,626. This price resulted in an effective-interest rate of 8% on the bonds. Clintin uses the
Toshiba Electric sold $5,000,000, 10%, 10-year bonds on January 1, 2006. The bonds were dated January 1 and pay interest July 1 and January 1. Toshiba Electric uses the straightline method to
McLain Company sold $2,000,000, 8% , 10-year bonds on July 1 , 2006. The bonds were dated July 1, 2006, and pay interest July 1 and January 1. McLain Company uses the straightline method to
The following is taken from the McGovern Company balance sheet.Interest is payable semiannually on January 1 and July l.The bonds are callable on any semiannual interest date. McGovern uses
Explain how creditors, investors, and others use financial statements in their decisions.- The role of financial statements is to provide information for- Creditors- Investors- Customers- Suppliers-
Explain the difference between cross-sectional and time series analysis.- Cross-sectional analysis entails comparing a corporation's financial statements to its primary competitors and industry
Analyze and interpret financial statements using horizontal and vertical analysis.- In horizontal analysis, each financial statement line item is expressed as a percentage of the base year (typically
Calculate and interpret profitability, liquidity, solvency, and shareholder ratios to evaluate a company's financial position and business operations.- Ratios help remove the effects of size
What are the two major categories of shareholder ratios?
Shari Uecker Company borrows $88,500 on September- 1 , 2006. from Egg Harbor State Bank by signing an $88,500.12%, one-year note. What is the accrued interest at December 31. 2006?a. $2,655.h.
Becky Sherrick Company has total proceeds from sales of $4,515. If the proceeds include sales taxes of 5%. the amount to be credited to Sales is:a. $4,000.b. $4,300.c. $4,289.25.d. No correct answer
The term used for bonds that are unsecured is:a. callable bonds.b. indenture bonds t. debenture bonds.d. bearer bonds.
Colson Inc. converts $600,000 of bonds sold at face value (SO 6 into 10,000 shares of common stock, par value $1. Both the bonds and the stock have a market value of $760,000.What amount should be
Andrews Inc. issues a $497,000, lit".. 3-year mortgage (SO 7 note on January 1. The note will be paid in three annual installments of $200,000. each payable at the end of the year. What is the amount
On January L, Besalius Inc. issued $1,000,000, 9% bonds (SO 1(toi $939,000. The market rate of interest lor these bonds is it)",,. Interest is payable annually on December 31.Besalius uses the
On January 1, Dias Corporation issued $1,000,000, 14%.5-year bonds with interest payable on July 1 and January 1. The bonds sold for $1,098,540. The market rate of interest for these bonds was 12%.
For the bonds issued in question 13. above, what is the (SO 11)carrying value of the bonds at the end of the third interest period?a. $486,000.b. $488,000.c. $472,000.d. $464,000.
Classify investments as strategic or nonstrategic.}- There are four possible methods of accounting for nonstrategic investments.- The fair value through profit and loss method must generally be used
Account for and report nonstrategic investments.- Nonstrategic investments are often made to earn investment income on excess cash balances.- Nonstrategic investments may consist of debt or equity
Account for and report strategic investments.- Strategic investments are usually made to influence or control another company.- Strategic investments are classified as long-term investments in the
Describe the consolidated statement of financial position and statement of earnings.- When a corporation owns more than \(50 \%\) of the outstanding common shares of another corporation, the investor
Describe accounting for business combinations.- Business combinations can occur through either an asset or share acquisition.- The business combination is recorded at the cost of acquisition, without
How do long-term investments differ from short-term investments?(Appendix)
Describe two classifications that are possible for nonstrategic investments under IFRS 9?.(Appendix)
Describe the amortized cost method of accounting for investments.(Appendix)
Describe the fair value through profit and loss method of accounting for investments. Under which circumstances should it be used?(Appendix)
Describe the equity method of accounting for investments. Under which circumstances should it be used?(Appendix)
What event triggers the recognition of investment income under the amortized cost method? Under the fair value method? Under the equity method?(Appendix)
How does the equity method discourage the manipulation of net income by investors?(Appendix)
Define the terms parent and subsidiary.(Appendix)
How does the consolidated statement of financial position differ from the statement of financial position of the parent?(Appendix)
Why is it necessary to eliminate transacttions between the parent and subsidiary in consolidation?(Appendix)
What is the difference between an asset acquisition and a share acquisition?(Appendix)
What is goodwill, and how is it calculated?(Appendix)
What is a business combination?(Appendix)
Describe the nature of a subsidiary.(Appendix)
Describe the ASPE accounting alternatives for a parent company that owns \(100 \%\) of a subsidiary.(Appendix)
Equity and debt investments that management intends to sell in the near future are called:a. trading securities.b. deferred securities.c. debt securities.d. stock securities.
Which of the following is a reason businesses purchase securities?a. To profit from changes in day-today security pricesb. To diversify riskc. To save (and earn returns on) money from uneven cash
IFRS requires which method to amortize bond premiums/discounts?a. Straight-lineb. Effective interestc. Present valued. Average
Which method cannot be used to account for nonstrategic investments?a. Costb. Fair valuec. Consolidationd. Amortized cost
The equity method requires dividend income to be recorded as:a. an investment account increase.b. an investment account decrease.c. statement of earnings revenue.d. an increase in retained earnings.
EMK Corp. is holding two bonds to maturity, both of which have a carrying value of \(\$ 132,000\). At the end of the fiscal year, the fair market value of bond \(\mathrm{A}\) is \(\$ 118,000\), and
Shackley Ltd. owns three equity securities held for trading, which have yielded the following fiscal year-end results:A. Dividend income: \(\$ 350\)B. Gain on sale: \(\$ 2,000\)C. Unrealized loss:
Refer to the information in Exercise 12-7. Assume that one of the securities was solely responsible for the \(\$ 600\) unrealized loss and was responsible for \(\$ 150\) of the dividend income. If
PET Inc. buys \(30 \%\) of the outstanding shares of KLN Company. What account will PET debit?a. Trading Securitiesb. Investments-Consolidation Methodc. Investments-Equity Methodd. Investments Cost
Whopper Corporation owns a \(40 \%\) interest in BigMac Corporation, which it purchased for \(\$ 2.5\) million. During fiscal year 2018, BigMac paid cash dividends of \(\$ 50,000\) and reported net
When the market value of a company's trading securities is lower than its cost, the difference should be:a. shown as a liability.b. subtracted from the historical cost of the investments.c. added to
What account title will not appear on consolidated financial statements?a. Inventoryb. Investment in EBL Corporation ( \(80 \%\) ownership)c. Investment in MJK Corporation ( \(35 \%\) ownership)d.
Consolidated financial statements are required: \(\square\)a. whenever the common shares of another corporation are owned.b. only when significant influence can be exerted over another company.c.
Assume a parent has total assets of \(\$ 6,000,000\) and a subsidiary incorporated by the parent company has total assets of \(\$ 4,000,000\). If the parent owns \(100 \%\) of the subsidiary's common
Goodwill is calculated as the excess of the cost of an acquired company over the:a. carrying value of net assets acquired.b. fair value of assets acquired.c. fair value of identifiable net assets
Matching Accounting Methods and Investments}Consider the following accounting methods for long-term investments.a. Amortized cost methodb. Fair value methodc. Equity methodd. Consolidation of parent
Trading Securities Fehr Finance began operations in 2018 and invests in securities held for trading. During 2018, it entered into the following trading security transactions:Purchased 20,000 shares
Trading Securities Tolland Financial began operations in 2018 and invests in securities classified as trading securities. During 2018, it entered into the following trading security
Trading Securities}Marco Financial began operations in 2018 and invests in securities held for trading. During 2018, it entered into the following transactions:Purchased 20,000 common shares of MNO
Amortized Cost Model}Mahco Financial began operations in 2018 and invests in bonds to be held to maturity. On Jan-OBJECTIVE 1 uary 1, 2018, Mahco acquired a \(\$ 1,000,0008 \%\) bond (yield 7.6\%)
Amortized Cost Model}OBJECTIVE 12 Mayco Financial began operations in 2018 and invests in bonds held to maturity. On January 1, 2018, Mayco acquired a \(\$ 5,000,0006 \%\) bond ( \(6.16 \%\) yield)
Trading Securities}Osaka Corporation had a portfolio of trading securities as of December 31, 2018. The original cost of the securities purchase on January 1st of the current year was \(\$ 117,000\).
Trading Securities}Perry Corporation has the following information for its portfolio of trading securities at the end of the year.\section*{Required:}1. Prepare the journal entries, if necessary, to
Investments in Trading Securities}Wong Corporation acquired the following equity securities during 2018:Wong classifies these securities as trading securities. During 2018, Northern paid a dividend
Fair Value and Equity Methods}Nadal Corporation purchased 10.000 common shares of Beck Inc., on January 1, 2018, for \(\$ 100,000\). During 2018, Beck declared and paid cash dividends to Nadal in the
Fair Value Method}On January 1, 2018, Reduction Products Inc. acquired 1,500 common shares of Tupper Corp. for \(\$ 24,000\). On that date, Tupper had 10,000 common shares outstanding. On October 1,
Equity Method}On January 1, 2018, Hannah Corporation acquired \(40 \%\) of the outstanding common shares ( 400 of 1,000 outstanding shares) of Valley Manufacturing Ltd. for \(\$ 60.000\), which
Accounting for Investments in Equity Securities}On January 1, 2018, Stern Corporation purchased 100 common shares issued by Milstein Inc. (representing \(12 \%\) of the total shares outstanding) for
Equity Method}OBJECTIVE 13 On January 1, 2018, Core Corporation acquired \(30 \%\) of the 10,000 outstanding common shares of Prima Foods Inc. for \(\$ 2,000,000\), which equals the book value of
Equity Method}On January 1, 2018, Copper Corporation acquired \(25 \%\) of the 5,000 outstanding common shares of Burgess Inc. for \(\$ 4,000,000\), which equals the book value of Burgess. On
Investments in Trading Securities}Maxwell Company engaged in the following transactions involving short-term investments:a. Purchased 200 shares of Bartco for \(\$ 12,800\).b. Received a \(\$
Consolidated Statement of Financial Position}Maple Corporation acquired \(100 \%\) of the outstanding common shares of Suncore Company in a business combination. Immediately before the business
Consolidated Statement of Earnings}Laurier Ltd. is the wholly owned subsidiary of Stuart Corporation. The December 31, 2018, statement of earnings for the two corporations are as follows:The
Goodwill}Pindar Corporation acquired all the outstanding shares of Strauss Company for \(\$ 23,000,000\) on January 1, 2018. On the date of acquisition, Strauss had the following statement of
Erin Danielle Company purchased equipment and incurred the following costs.What amount should be recorded as the equipment'.'a. $24,000.h. $25,200.c. 5,400.d. 1. 5,800. Cash price Sales taxes
Ann Torbert purchased a truck for $1 1,000 on January 1, 2005. The truck will have an estimated salvage value of$1,000 at the end of 5 years. Using the units-of-activity method, the balance in
In Additions to plant assets are:a. revenue expenditures.b. debited to a Repair Expense account.c. debited to a Purchases account.d. capital expenditures.
Martha Beyerlein Company incurred $150,000 of research and development costs in its laboratory to develop a patent granted on January 2, 2006. On July 31.2006, Beyerlein paid $35,000 for legal fees
Indicate which of the following statements is intv.a. Since intangible assets lack physical substance, they need be disclosed only in the notes to the financial statements.b. Goodwill should be
Schopenhauer Company exchanged an old machine, with I S(a book value of $39,000 and a fair market value of$35,000, and paid $ 1 0,000 cash for a similar new machine.At what amount should the
In exchanges of similar assets:""a. neither gains nor losses are recognized immediately.b. gains, but not losses, are recognized immediately.jz. losses, but not gains, are recognized immediately.d.
Hilo Company acquires the land and building owned by Corrs Company. What types of costs may be incurred to make the asset ready for its intended use if Hilo Company wants to use (a) only the land,
Garcia Corporation owns a machine that is fully depreci- ated but is still being used. How should Garca account for this asset and report it in the financial statements?
Teresa Speck Company hires an accounting intern who says that intangible assets should always be amortized over their legal lives. Is the intern correct? Explain.
Jerry Sain, a business major, is working on a case prob- lem for one of his classes. In the case problem, the com- pany needs to raise cash to market a new product it de- veloped. Sam Morris, an
Toys "R" Us, Inc. in 2003 reported total average assets of $9.8 billion and net sales of $11.6 billion. What was the company's asset turnover ratio?
Wanzo Corporation and Cheng Corporation operate in the same industry. Wanzo uses the straight-line method to account for depreciation: Cheng uses an accelerated method. Explain what complications
Shuey Corporation uses straight-line depreciation for fi- nancial reporting purposes but an accelerated method for tax purposes. Is it acceptable to use different methods for the two purposes? What
You are comparing two companies in the same industry. You have determined that Lam Corp. depreciates its plant assets over a 40-year life, whereas Hoi Corp. depreciates its plant assets over a
Zito Company is doing significant work to revitalize its warehouses. It is not sure whether it should capitalize these costs or expense them. What are the implications for current-year net income and
When similar assets are exchanged, how is the gain or loss on disposal computed?

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