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survey of accounting

Questions and Answers of Survey of Accounting

=+6. For each ofthe following payroll-related taxes, indicate whether it generally applies to (1) employees only,
=+(2) employers only, or (3) both employees and employers:a. Federal income tax
=+b. Federal unemployment compensation taxc. Medicare taxd. Social security taxe. State unemployment compensation tax
=+9. A corporation issues $18,000,000 of 6% bonds to yield an effective interest rate of 7%.
=+a. Was the amount of cash received from the sale of the bonds more or less than $18,000,000?
=+b. Identify the following amounts related to the bond issue: (1) face amount, (2) market rate ofinterest,
=+(3) contract rate ofinterest, and (4) maturity amount.
=+10. The following data relate to a $2,000,000, 8% bond is¬sue for a selected semiannual interest period:Bond carrying amount at beginning of period $2,125,000
=+Interest paid at end of period 160,000 Interest expense allocable to the period 148,750
=+(a) Were the bonds issued at a discount or at a pre¬mium?
=+(b) What expense account was decreased to amortize the discount or premium?
=+V11. Oftwo corporations organized at approximately the same time and engaged in competing businesses, one issued $50 par common stock, and the other issued$1 par common stock. Do the par
=+12. When a corporation issues stock at a premium, is the premium income? Explain.
=+13.a. In what respect does treasury stock differ from unissued stock?
=+b. How should treasury stock be presented on the balance sheet?
=+14. A corporation reacquires 10,000 shares ofits own $75 par common stock for $800,000, recording it at cost.
=+(a) What effect does this transaction have on revenue or expense ofthe period? (b) What effect does it have on stockholders’ equity?
=+15. The treasury stock in Question 14 is resold for$900,000. (a) What is the effect on the corporations Exercises
=+revenue ofthe period? (b) What is the effect on stock¬holders’ equity?
=+16. A corporation with preferred stock and common stock outstanding has a substantial balance in its retained earnings account at the beginning of the current fiscal year. Although net income for
=+17. An owner of 100 shares ofMountain Spring Company common stock receives a stock dividend of 6 shares.(a) What is the effect ofthe stock dividend on the stockholder’s proportionate interest
=+18. What is the primary purpose of a stock split?
=+A business issued a 60-day, 7% note for $15,000 to a creditor on account. Illustrate the effects on the accounts and financial statements ofrecording (a) the issuance ofthe note and (b) the
=+Apr. 15. Paid the first installment ofthe estimated income tax for the current fiscal year ending December 31, $90,000. No entry had been made to record the liability.Dec. 31. Recorded the
=+Assume that the June 15 and September 15 installments of $90,000 were also paid.Storage Systems Inc. recognized service revenue of $420,000 on its financial statements in 2007.Assume, however, that
=+Illustrate the effects on the accounts and financial statements ofthe tax expense, deferred taxes, and taxes payable for 2007 and 2008, respectively.E8-5 Accrued product warranty Obj 2
=+Digital Audio Works, Inc. warrants its products for 1 year. The estimated product warranty is 114%ofsales. Assume that sales were $975,000 for January. In February, a customer received warranty
=+a. Determine the warranty liability at January 31, the end ofthe first month ofthe current year.
=+b. What accounts are decreased for the warranty work provided in February?E8-6
=+Accrued product warranty Obj 2 Ford Motor Company disclosed estimated product warranty payable for 2006 and 2005 as follows.December 31 2006 2005(in millions)
=+Product warranty payable $6,032 $6,243 Ford’s sales were $153,474 million in 2005 and decreased to $143,307 million in 2006. Assume that the total paid on warranty claims during 2006 was $4,106
=+a. Illustrate the effects on the accounts and financial statements for the 2006 product warranty expense.
=+b. Assuming $4,106 million in warranty claims paid during 2006, explain the $211 million decrease in the total warranty liability from 2005 to 2006.
=+E8-7 Contingent liabilities Obj 2 Several months ago, Northwest Cover Paint Company experienced a hazardous materials spill at one of its plants. As a result, the Environmental Protection Agency
=+Northwest Cover’s legal counsel believes that it is probable that the EPA fine will stand.In addition, counsel indicates that an out-of-court settlement of $300,000 has recently been reached with
=+a. Illustrate the effects ofthe contingent liabilities associated with the hazardous materials spill on the accounts and financial statements.
=+b. Prepare a note disclosure relating to this incident.
=+E8-8 Contingent liabilities Obj 2 The following note accompanied recent financial statements for Goodyear Tire and Rubber Company:Goodyear is a defendant in numerous lawsuits involving
=+The portion ofthe recorded liabilities for potential product liability and other tort claims relating to asbestos claims is based on pending claims. The amount recorded reflects an estimate ofthe
=+a. Illustrate the effects on the accounts and financial statements ofrecording the contingent liability of $229,100,000.
=+b. Why was the contingent liability recorded?
=+E8-9 Calculate payroll Qbj 2/b. Net pay, $883.25 An employee earns $22 per hour and 1 Vi times that rate for all hours in excess of 40 hours per week. Assume that the employee worked 50 hours
=+E8-10 Summary payroll data Ohj 2 y/ (3) Total earnings,$260,000 In the following summary ofdata for a payroll period, some amounts have been intentionally omitted:Earnings:1. At regular rate ?2. At
=+4. Social security tax 15,250 5. Medicare tax 3,900 6. Income tax withheld 46,590
=+7. Medical insurance 7,775
=+8. Union dues ?
=+9. Total deductions 76,000
=+10. Net amount paid 184,000 Wages and Salaries Expense Accounts:
=+11. Factory Wages 138,900
=+12. Sales Salaries ?
=+13. Office Salaries 59,200
=+Calculate the amounts omitted in lines (1), (3), (8), and (12).
=+E8-11 According to a summary ofthe payroll ofMatrix Publishing Co., $380,000 was subject to the Recording payroll taxes 7.5% FICA tax. Also, $16,000 was subject to state and federal unemployment
=+a. Calculate the employer’s payroll taxes, using the following rates: state unemployment, 4.3%;federal unemployment, 0.8%.
=+b. Illustrate the effects on the accounts and financial statements ofrecording the accrual of payroll taxes.
=+E8-12 Accrued vacation pay Obj 2 E8-13 Bond price Obj 3
=+Walt Disney 2.125% bonds due in 2023 were reported in The Wall Street Journal as selling for 103.536. Were the bonds selling at a premium or at a discount? Explain.294 Chapter 8 E8-14 Issuing bonds
=+Heritage Optics Inc. produces and distributes fiber optic cable for use by telecommunications companies. Heritage Optics Inc. issued $30,000,000 of 15-year, 6% bonds on May 1 ofthe cur¬rent year,
=+E8-15 Dividends per share Objs 4, 5/ Preferred stock, 1st year:$0.80 Electro-Rad Inc., a developer ofradiology equipment, has stock outstanding as follows:50,000 shares of 2%, preferred stock of
=+E8-16 Dividends per share Objs 4, 5/ Preferred stock, 3rd year:$0.10 CompuLead Inc., a software development firm, has stock outstanding as follows: 40,000 shares of 1%, preferred stock of $25 par,
=+E8-17 Issuing par stock Obj 4 On February 4, Cinderella Rocks Inc., a marble contractor, issued for cash 30,000 shares of $20 par common stock at $64, and on March 31, it issued for cash 18,000
=+a. Illustrate the effects on the accounts and financial statements ofthe February 4 and March 31 transactions.
=+b. What is the total amount invested (total paid-in capital) by all stockholders as ofMarch 31?
=+E8-18 Issuing stock for assets other than cash Obj 4 On November 10, Craddock’s Corporation, a wholesaler ofhydraulic lifts, acquired land in ex¬change for 15,000 shares of $8 par common stock
=+E8-19 Treasury stock transactions Obj 4 Mountain Springs Inc. bottles and distributes spring water. On May 2 ofthe current year, Mountain Springs reacquired 3,000 shares ofits common stock at $72
=+a. What is the balance ofTreasury Stock on December 31 ofthe current year?
=+b. Where will the balance ofTreasury Stock be reported on the balance sheet?
=+c. For what reasons might Mountain Springs have purchased the treasury stock?
=+E8-20 Treasury stock transactions Obj 4 Azalea Gardens Inc. develops and produces spraying equipment for lawn maintenance and in¬dustrial uses. On September 9 ofthe current year, Azalea Gardens
=+a. What is the balance ofTreasury Stock on December 31 ofthe current year?
=+b. How will the balance in Treasury Stock be reported on the balance sheet?E8-21
=+Treasury stock transactions Obj 4 Tacoma Inc. bottles and distributes spring water. On June 12 ofthe current year, Tacoma Inc.reacquired 15,000 shares ofits common stock at $48 per share.
=+a. What is the balance ofTreasury Stock on December 31 ofthe current year?
=+b. Where will the balance ofTreasury Stock be reported on the balance sheet?
=+c. For what reasons might Tacoma Inc. have purchased the treasury stock?Liabilities and Stockholders’ Equity 295
=+E8-22 Cash dividends Ghj 5 The dates ofimportance in connection with a cash dividend of $95,000 on a corporation’s com¬mon stock are April 9, May 9, and June 8. Illustrate the effects on the
=+E8-23 Effect ofcash dividend and stock split°bjs 5, 6 c\\V\dcrvfe P^aSp\0
=+Indicate whether the following actions would ( +) increase, (—) decrease, or (0) not affect Indigo Inc.s total assets, liabilities, and stockholders’ equity:Stockholders’(3) ex evenA
=+E8-24 Effect ofstock split Obj 6 Assets Liabilities Equity Declaring a cash dividend o -F —Paying the cash dividend declared in (1) — 0 Authorizing and issuing stock certificates in a stock
=+6p 114- ]Rolling Pin Corporation wholesales ovens and ranges to restaurants throughout the Midwest.Rolling Pin Corporation, which had 50,000 shares of common stock outstanding, declared a 3-for-l
=+a. What will be the number ofshares outstanding after the split? 6 0 ^
=+b. Ifthe common stock had a market price of $ 180 per share before the stock split, what would be an approximate market price per share after the split?
=+E8-25 Stockholders’ equity section ofbalance sheet Obj 7/ Total stockholders’equity, $4,020,000 The following accounts and their balances appear in the ledger ofHeart and Saul Inc. on April 30
=+Prepare the Stockholders’ Equity section ofthe balance sheet as ofApril 30. Twenty-five thousand shares of common stock are authorized, and 3,500 shares have been reacquired.
=+E8-26 Stockholders’ equity section ofbalance sheet Obj 7 S Total stockholders’equity, $4,726,500 Sports Car Inc. retails racing products for BMWs, Porsches, and Ferraris. The following accounts
=+Twenty thousand shares of preferred and 400,000 shares of common stock are authorized. There are 22,000 shares of common stock held as treasury stock.
=+Prepare the Stockholders’ Equity section ofthe balance sheet as of November 30, the end of the current year./ 1. $42,000
=+Bliss Co., which produces and sells skiing equipment, is financed as follows:Bonds payable, 6% (issued at face amount) $4,000,000 Preferred $2 stock (nonparticipating), $25 par 4,000,000 Common
=+Determine the earnings per share of common stock, assuming that the income before bond interest and income tax is (a) $1,000,000, (b) $1,800,000, and (c) $3,200,000.
=+Differences between the accounting methods applied to accounts and financial reports and those used in determining taxable income yielded the following amounts for the first four years of a
=+First Second Third Fourth Year_Year_Year_Year Income before income taxes $250,000 $300,000 $500,000 $400,000 Taxable income 200,000 280,000 540,000 430,000 The income tax rate for each ofthe four
=+1. Determine for each year the amounts described by the following captions, presenting the information in the form indicated:Income Tax Deducted on Income Year Statement Income Tax Payments for the
=+2. Total the first three amount columns.
=+3. Illustrate the effects ofrecording the current and deferred tax liabilities on the accounts and financial statements for the first year.
=+The following information about the payroll for the week ended January 31 was obtained from the records of Greenfield Co.:Salaries:Sales salaries $320,000 Warehouse salaries 84,500 Office salaries
=+State unemployment (employer only), 4.2%Federal unemployment (employer only), 0.8%Deductions:Income tax withheld U.S. savings bonds Group insurance$109,760 16,400 24,690 Liabilities and
=+1. For the January 31 payroll, determine the employee FICA tax payable.
=+2. Illustrate the effect on the accounts and financial statements ofpaying and recording the January 31 payroll.
=+3. Determine the following amounts for the employer payroll taxes related to the January 31 payroll: (a) FICA tax payable, (b) state unemployment tax payable, and (c) federal unem¬ployment tax
=+4. Illustrate the effect on the accounts and financial statements of recording the liability for the January 31 payroll taxes.

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