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principles financial accounting

Questions and Answers of Principles Financial Accounting

The bookkeeper of Hart Company has prepared the following incorrect statement of stockholders' equity for the year ended December 31, 1998 :The authorized stock consists of 12,000 shares of preferred
The only stockholders' equity items of Jody Company at June 30, 1998, are:On August 4, 1998, a 4\% cash dividend was declared, payable on September 3. On November 16 , a \(10 \%\) stock dividend was
Following are selected transactions of White Corporation:Required Prepare journal entries for all of these transactions. 1991 Dec. 31 The board of directors authorized the appropriation of $50,000 of
Following are selected data of Kane Corporation at December 31, 1998:Prepare a statement of retained earnings for the year ended December 31, 1998. Net income for the year $512,000 Dividends declared
The stockholders' equity of Sayers Company at January 1, 1998, is as follows:During 1998, the following transactions occurred in the order listed:1. Issued 10,000 shares of stock for \(\$
The stockholders' equity of Briar Company on December 31, 1997, consisted of 1,000 authorized, issued, and outstanding shares of \(\$ 72\) cumulative preferred stock, stated value \(\$ 240\) per
The following stockholders' equity section is from Bell Company's October 31, 1997, balance sheet:During the ensuing fiscal year, Bell Company entered into the following transactions:1. The
Selected data for Brinks Company for 1998 are given below:Assume the applicable federal income tax rate is \(40 \%\). All of the items of expense, revenue, and loss are included in the computation of
The stockholders' equity section of the Bates Corporation's balance sheet for June 30, 1998, follows:On July 1, 1998, the corporation's directors declared a \(10 \%\) stock dividend distributable on
The following journal entries are for Keel Corporation:The management of Keel Corporation has asked you, a CPA, to analyze these journal entries and decide whether each is correct. The explanations
Refer to the financial statements of The Coca-Cola Company in the annual report booklet. Note 11 discusses the treasury stock transactions during the 1996 fiscal period.\section*{Required}a. Based on
Based on the ethics case on page 481, answer the following questions concerning Ace Chemical Company in writing:a. Is this transaction fair to the creditors?b. Why wouldn't the officers merely
In teams of two to three students, go to the library to find articles evaluating accounting software packages. Use a periodicals index such as the Accounting and Tax Index or the Business Periodicals
With a small group of students, go to the library and locate Statement of Financial Accounting Standards No. 4, "Reporting Gains and Losses from Extinguishing of Debt," published by the Financial
With one or two other students, locate the annual reports of three companies and study their statements of stockholders' equity. Determine why the number of common shares outstanding changed (if at
Visit the following website for Computer Associates International, Inc.:\section*{http://www.cai.com}Pursue choices on the screen until you locate the consolidated statement of stockholders' equity.
Visit the following website for International Paper:http://www.ipaper.com Pursue choices on the screen until you locate the consolidated statement of stockholders' equity. You will probably go down
Under the cost method, the investment account is adjusted when dividends are received.
The cost method should be used when a corporation makes a long-term investment of less than \(20 \%\), and there is no significant control.
In a stock split, the investor does not recognize revenue, but reduces the cost per share of stock.
Trading securities and available-for-sale securities should be grouped separately in applying the fair market value rules.
When making elimination entries, the entries are made only on the consolidated statements work sheet and not on the accounting records of the parent and subsidiary.
(Based on appendix) Pronouncements issued by the International Accounting Standards Committee (IASC) must be followed by member nations.
In which of the following cases is the investor company limited to use of the equity method in accounting for its stock investments?a. Short-term investments.b. Long-term investments of less than
Under the equity method, which of the following is true?a. Dividends received reduce the investment account.b. Dividends received increase the investment account.c. The investor's share of net income
When the fair market value rules are followed, which of the following is true when the market value of the stocks in the Trading Securities account falls below their cost?a. The Unrealized Losses on
Under the equity method, the investment account always reflects only the:a. Dividends paid by the investee corporation.b. Investor's interest in the net assets of the investee.c. Investor's share of
The excess of cost over the book value of an investment that is due to expected above-average earnings is labeled on the consolidated balance sheet as:a. Goodwill.b. Common stock.c. Retained
(Based on appendix) Which of the following statements is true regarding the environment of international accounting?a. More and more nations are switching to a marketoriented economy.b. The
For what reasons do corporations purchase the stock of other corporations?
Explain how marketable securities should be classified in the balance sheet.
Describe the valuation bases used for marketable equity securities.
Under what circumstances is the equity method used to account for stock investments?
Explain briefly the accounting for stock dividends and stock splits from the investor's point of view.
Of what significance is par value to the investing corporation?
What is the purpose of preparing consolidated financial statements?
Under what circumstances must consolidated financial statements be prepared?
Why is it necessary to make elimination entries on the consolidated statement work sheet? Are these elimination entries also posted to the accounts of the parent and subsidiary? Why or why not?
Why might a corporation pay an amount in excess of the book value for a subsidiary's stock? Why might it pay an amount less than the book value of the subsidiary's stock?
The item Minority interest often appears as one amount in the consolidated balance sheet. What does this item represent?
How do a subsidiary's earnings, losses, and dividends affect the investment account of the parent when the equity method of accounting is used?
When must each of the following methods be used to account for a business combination?a. Purchase.b. Pooling of interests.
List three differences between the purchase and pooling of interests methods of accounting for business combinations.
Why are consolidated financial statements of limited usefulness to the creditors and minority stockholders of a subsidiary?
Distinguish between a purchase and a pooling of interests.
(Based on appendix) Why do differences exist in accounting standards and practices from nation to nation?
(Based on appendix) How successful have efforts at harmonization been to date?
Real World Question. Based on the financial statements of The Coca-Cola Company contained in the annual report booklet, what was the 1996 Investment in Coca-Cola Enterprises, Inc., balance? According
Real World Question. Based on the financial statements of John H. Harland Company contained in the annual report booklet, what was the 1996 ending longterm investment balance? What was the net change
On July 1, 1999, Tam Company purchased 200 shares of Del Company capital stock as a temporary investment (trading securities) at \(\$ 676.80\) per share plus a commission of \(\$ 720\). On July 15 ,
Key Company purchased 200 shares of Franklin Company stock at a total cost of \(\$ 7,560\) on July 1, 1999. At the end of the accounting year (December 31, 1999), the market value for these shares
Corbit Company has marketable equity securities that have a fair market value at year-end that is \(\$ 13,440\) below their cost. Give the required entry if:a. The securities are current assets
Ruiz Company owns \(75 \%\) of Sim Company's outstanding common stock and uses the equity method of accounting. Sim Company reported net income of \(\$ 702,000\) for 1999. On December 31, 1999, Sim
On February 1, 1999, Larkin Company acquired \(100 \%\) of the outstanding voting common stock of TRD Company for \(\$ 8,400,000\) cash. The stockholders' equity of the TRD Company consisted of
Given the facts in Exercise 14-5, how much would be recorded as goodwill in each of the following instances? The same amount was paid, but the parent company acquired a-\section*{Exercise 14-4}a.
Heidi Corporation acquired, for cash, \(80 \%\) of the outstanding voting common stock of Sumpter Company. After the close of business on the date of acquisition, Sumpter Company's stockholders'
On January 1, 1998, Company J acquired \(85 \%\) of the outstanding voting common stock of Company K. On that date, Company K's stockholders' equity consisted of:Compute the difference between cost
The January 1, 1999, stockholders' equity section of Saye Company's balance sheet follows:Ninety percent of Saye Company's outstanding voting common stock was acquired by Tim Company on January 1,
Company S purchased \(90 \%\) of Company T's outstanding voting common stock on January 2, 1999. The investment is accounted for under the equity method. Company \(S\) paid \(\$ 2,790,000\) for its
On September 1, 1999, Ramsey Company purchased the following relatively long-term investments classified as available-for-sale securities:1. Two thousand shares of Lacey Company capital stock at \(\$
Kress, Inc., purchased on July 2, 1999, 240 shares of Baker Company \(\$ 180\) par value common stock as a temporary investment at \(\$ 288\) per share, plus a broker's commission of \(\$ 432\).On
Prime Company acquired \(90 \%\) of the outstanding voting common stock of Orr Company on January 1, 1999, for \(\$ 7,560,000\) cash. Prime Company uses the equity method. During 1999, Orr reported
Codd Company acquired \(70 \%\) of the outstanding voting common stock of Snow Company for \(\$ 8,568,000\) on January 1,1999 . The investment is accounted for under the equity method During the
Maple Company acquired all of the outstanding voting common stock of Dodd Company on January 2, 1999, for \(\$ 4,320,000\). On the date of acquisition, the balance sheets for the two companies were
Refer back to Problem 14-5. Maple Company uses the equity method. Assume the following amounts are taken from the adjusted trial balances of Maple Company and Dodd Company on December 31, 1999There
Using the work sheet from Problem 14-6, prepare the following items:a. Consolidated income statement for the year ended December 31, 1999.b. Consolidated statement of retained earnings for the year
Supply the missing word(s) in the following statements:a. Accounting must reflect the national \(\qquad\) and \(\qquad\) environment in which it is practiced.b. Other accounting differences among
Prepare entries for trading securities (L.O. 1, 2)Paris Company acquired on July 15, 1999, 400 shares of Rome Company \(\$ 720\) par value capital stock at \(\$ 698.40\) per share plus a broker's
On October 17, 1999, Strong Company purchased the following common stocks (all trading securities) at the indicated per share prices that included commissions:On December 31, 1999, the market prices
On January 1, 1999, Long Company acquired 80% of the outstanding voting common stock of Fall Company for $4,032,000 cash. Long Company uses the equity method. During 1999, Fall reported $672,000 of
Pearson Company acquired \(75 \%\) of the outstanding voting common stock of Frost Company for \(\$ 1,444,800\) cash on January 1,1999 . The investment is accounted for under the equity method.
Cord Company acquired \(100 \%\) of the outstanding voting common stock of Thorpe Company on January 2, 1999, for \(\$ 2,700,000\). At the end of business on the date of acquisition, the balance
Refer to Problem 14-5A. Cord Company uses the equity method. Assume the following are from the adjusted trial balances of Cord Company and Thorpe Company on December 31, 1999:There is no intercompany
Using the work sheet from Problem 14-6A, prepare the following items:a. Consolidated income statement for the year ended December 31, 1999.b. Consolidated statement of retained earnings for the year
Select the best answer to each of the following questions:1. Methods used to account for transactions between companies in different nations when goods are received on one date and the invoice is
You are the CPA engaged to audit the records of Quigley Company. You find that your client has a portfolio of marketable equity securities that has a total market value of \(\$ 300,000\) less than
On January 2, 1999, Brown Company acquired \(60 \%\) of the voting common stock of Cobb Company for \(\$ 720,000\) cash. The excess of cost over book value was due to above-average earnings
International Flavors \& Fragrances, Inc., is the leading creator and manufacturer of flavors and fragrances used by others to impart or improve flavor or fragrance in a wide variety of consumer
Refer to the Reuters's annual report excerpt in "A Broader Perspective" on page 522. In writing, explain how the differences between the U.K. and the U.S. GAAP would affect Reuters's net income.
In teams of two or three students, select three companies you believe may be profitable shortterm investments. Determine the current market prices for those companies' stocks from today's newspaper
With one or two other students, go to the library and locate Statement of Financial Standards No. 94, "Consolidation of All Majority-Owned Subsidiaries," published by the Financial Accounting
In a small group of students, locate the annual reports of three companies with investments in other companies. Compare the accounting and reporting for the investments by the three companies. For
\section*{Visit the following website for General Electric Company: http://www.ge.com}Pursue choices on the screen until you locate the consolidated balance sheet. You will probably go down some
Visit the following website for the European Accounting Association: http:/www.bham.ac.uk/business/eaacong.html Browse around this site for any interesting information regarding the activities and
An unsecured bond is called a debenture bond.
Callable bonds may be called at the option of the holder of the bonds.
Favorable financial leverage results when borrowed funds are used to increase earnings per share of common stock.
If the market rate of interest exceeds the contract rate, the bonds are issued at a discount.
The straight-line method of amortization is the recommended method.
Harner Company issued \(\$ 100,000\) of \(12 \%\) bonds on March 1, 1999. The bonds are dated January 1, 1999, and were issued at 96 plus accrued interest. The entry to record the issuance would
If the bonds in (1) had been issued at 104 , the entry to record the issuance would have been:d. None of the above. a. Cesh 104,000 Bonds Payable 100,000 Premium on Bonds Payable 4,000
On January 1, 1999, the Alvarez Company issued \(\$ 400,000\) face value of \(8 \%, 10\)-year bonds for cash of \(\$ 328,298\), a price to yield \(11 \%\). The bonds pay interest semiannually and
If the straight-line amortization method had been used in (3), the interest expense for the first six months would have been:a. \(\$ 39,170\).b. \(\$ 32,000\).c. \(\$ 18,000\).d. \(\$ 19,585\).
Assume a company has net income of \(\$ 100,000\), income tax expense of \(\$ 40,000\), and interest expense of \(\$ 20,000\). The times interest earned ratio is:a. 5 timesb. 7 timesc. 8 timesd. 9
What are the advantages of obtaining long-term funds by the issuance of bonds rather than additional shares of capital stock? What are the disadvantages?
What is a bond indenture? What parties are usually associated with it? Explain why.
Explain what is meant by the terms coupon, callable, convertible, and debenture.
What is meant by the term trading on the equity?
When bonds are issued between interest dates, why should the issuing corporation receive cash equal to the amount of accrued interest (accrued since the preceding interest date) in addition to the
Why might it be more accurate to describe a sinking fund as a bond redemption fund?

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