Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

What effects will this have on the balance sheet: ? Option #1 - Buy .005% (=.00005 as a decimal} of the outstanding shares of Oxford

What effects will this have on the balance sheet: ?

Option #1- Buy .005% (=.00005 as a decimal} of the outstanding shares of Oxford for $100,000 in cash on April 1, 2020. You would have planned to hold the shares for more than one year. On the acquisition date, all of their assets and liabilities were fairly valued except their patent which was undervalued (needs to be increased) by $2,000,000 with a five year remaining life. Oxford Company uses straight-line amortization.

During the last nine months of the year, Oxford Company earned $30,000,000 of net income and paid a total of $6,000,000 of cash dividends. On December 31, 2020, your shares of Oxford Company had a total market value of $106,000.

You would have sold 100 shares of new 5% PREFERRED stock on January 1, 2020, for

$61 per share in cash. At the beginning of 2019, you had received authorization for 2,000 shares of this $60 par nonconvertible, nonparticipating, cumulative preferred stock. Because your company paid cash dividends to common stockholders, you would have declared AND paid a full year cash dividend to preferred stockholders in 2020 as well.

On October 1, 2020, you would have also purchased $20,000 of 5 year, 9% bonds of ANOTHER Company for 102. These bonds pay interest annually on September 30. You would use the straight-line method of amortization. You plan to hold these bonds for more than one year but are not sure that you will hold them the entire five year life. On December 31, 2020, your bonds of ANOTHER Company had a market value of 103.

Please show how this will affect the balance sheet, and where it would be placed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Introduction To Managerial Accounting

Authors: Peter Brewer, Ray Garrison, Eric Noreen, Suresh Kalagnanam, Ganesh Vaidyanathan

6th Canadian Edition

1260060411, 9781260060416

More Books

Students also viewed these Accounting questions