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Questions and Answers of Accounting

(Determine Proper Amounts in Account Balances) Presented below are three independent situations.(a) Chinook Corporation incurred the following costs in connection with the issuance of bonds:(1)
(Entries and Questions for Bond Transactions) On June 30, 2010, Mackes Company issued $5,000,000 face value of 13%, 20-year bonds at $5,376,150, a yield of 12%. Mackes uses the effective-interest
(Entries for Bond Transactions) On January 1, 2010, Osborn Company sold 12% bonds having a maturity value of $800,000 for $860,651.79, which provides the bondholders with a 10% yield. The bonds are
(Information Related to Various Bond Issues) Pawnee Inc. has issued three types of debt on January 1, 2010, the start of the company’s fiscal year.(a) $10 million, 10-year, 13% unsecured bonds,
(Entry for Retirement of Bond; Bond Issue Costs) On January 2, 2005, Prebish Corporation issued $1,500,000 of 10% bonds at 97 due December 31, 2014. Legal and other costs of $24,000 were incurred in
(Entries for Retirement and Issuance of Bonds) Robinson, Inc. had outstanding $5,000,000 of 11% bonds (interest payable July 31 and January 31) due in 10 years. On July 1, it issued $7,000,000 of
(Entries for Retirement and Issuance of Bonds) On June 30, 2002, Mendenhal Company issued 12% bonds with a par value of $600,000 due in 20 years. They were issued at 98 and were callable at 104 at
(Entries for Retirement and Issuance of Bonds) Friedman Company had bonds outstanding with a maturity value of $500,000. On April 30, 2011, when these bonds had an unamortized discount of $10,000,
(Entries for Zero-Interest-Bearing Notes) On January 1, 2011, McLean Company makes the two following acquisitions.1. Purchases land having a fair market value of $300,000 by issuing a 5-year,
(Imputation of Interest) Presented below are two independent situations:(a) On January 1, 2011, Spartan Inc. purchased land that had an assessed value of $390,000 at the time of purchase. A $600,000,
(Imputation of Interest with Right) On January 1, 2010, Durdil Co. borrowed and received $500,000 from a major customer evidenced by a zero-interest-bearing note due in 3 years. As consideration for
(Long-Term Debt Disclosure) At December 31, 2010, Redmond Company has outstanding three long-term debt issues. The first is a $2,000,000 note payable which matures June 30, 2013. The second is a
(Settlement of Debt) Strickland Company owes $200,000 plus $18,000 of accrued interest to Moran State Bank. The debt is a 10-year, 10% note. During 2010, Strickland’s business deteriorated due to a
(Term Modification without Gain—Debtor’s Entries) On December 31, 2010, the American Bank enters into a debt restructuring agreement with Barkley Company, which is now experiencing financial
(Term Modification without Gain—Creditor’s Entries) Using the same information as in E14-21 above, answer the following questions related to American Bank (creditor).(a) What interest rate should
(Term Modification with Gain—Debtor’s Entries) Use the same information as in E14-21 above except that American Bank reduced the principal to $1,900,000 rather than $2,400,000. On January 1,
(Term Modification with Gain—Creditor’s Entries) Using the same information as in E14-21 and E14-23 above, answer the following questions related to American Bank (creditor).(a) Compute the loss
(Debtor/Creditor Entries for Settlement of Troubled Debt) Gottlieb Co. owes $199,800 to Ceballos Inc. The debt is a 10-year, 11% note Because Gottlieb Co is in financial trouble, Ceballos Inc. agrees
(Debtor/Creditor Entries for Modification of Troubled Debt) Vargo Corp. owes $270,000 to First Trust. The debt is a 10-year, 12% notes due December 31, 2010. Because Vargo Corp. is in financial
(Analysis of Amortization Schedule and Interest Entries) The following amortization and interest schedule reflects the issuance of 10-year bonds by Capulet Corporation on January 1, 2004, and the
(Issuance and Retirement of Bonds) Venezuela Co. is building a new hockey arena at a cost of $2,500,000. It received a down payment of $500,000 from local businesses to support the project, and now
(Negative Amortization) Good-Deal Inc. developed a new sales gimmick to help sell its inventory of new automobiles. Because many new car buyers need financing, Good-Deal offered a low down payment
(Issuance and Retirement of Bonds; Income Statement Presentation) Holiday Company issued its 9%, 25-year mortgage bonds in the principal amount of $3,000,000 on January 2, 1996, at a discount of
(Comprehensive Bond Problem) In each of the following independent cases the company closes its books on December 31.1. Sanford Co. sells $500,000 of 10% bonds on March 1, 2010. The bonds pay interest
(Issuance of Bonds between Interest Dates, Straight-Line, Retirement) Presented below are selected transactions on the books of Simonson Corporation. May 1, 2010 Bonds payable with a par value of
(Entries for Life Cycle of Bonds) On April 1, 2010, Seminole Company sold 15,000 of its 11%, 15-year, $1,000 face value bonds at 97. Interest payment dates are April 1 and October 1, and the company
(Entries for Zero-Interest-Bearing Note) On December 31, 2010, Faital Company acquired a computer from Plato Corporation by issuing a $600,000 zero-interest-bearing note, payable in full on December
(Entries for Zero-Interest-Bearing Note; Payable in Installments) Sabonis Cosmetics Co. purchased machinery on December 31, 2009, paying $50,000 down and agreeing to pay the balance in four equal
(Comprehensive Problem: Issuance, Classification, Reporting) Presented below are four independent situations. (a) On March 1, 2011, Wilke Co. issued at 103 plus accrued interest $4,000,000, 9% bonds.
(Effective-Interest Method) Samantha Cordelia, an intermediate accounting student, is having difficulty amortizing bond premiums and discounts using the effective-interest method. Furthermore, she
(Debtor/Creditor Entries for Continuation of Troubled Debt) Daniel Perkins is the sole shareholder of Perkins Inc., which is currently under protection of the U.S. bankruptcy court. As a “debtor in
(Restructure of Note under Different Circumstances) Halvor Corporation is having financial difficulty and therefore has asked Frontenac National Bank to restructure its $5 million note outstanding.
(Debtor/Creditor Entries for Continuation of Troubled Debt with New Effective Interest) Crocker Corp. owes D. Yeager Corp. a 10-year, 10% note in the amount of $330,000 plus $33,000 of accrued
In the absence of restrictive provisions, what are the basic rights of stockholders of a corporation?
Why is a preemptive right important?
Distinguish between common and preferred stock.
Why is the distinction between paid-in capital and retained earnings important?
Explain each of the following terms: authorized capital stock, unissued capital stock, issued capital stock, outstanding capital stock, and treasury stock.
What is meant by par value, and what is its significance to stockholders?
Describe the accounting for the issuance for cash of no par value common stock at a price in excess of the stated value of the common stock.
Explain the difference between the proportional method and the incremental method of allocating the proceeds of lump-sum sales of capital stock.
What are the different bases for stock valuation when assets other than cash are received for issued shares of stock?
Explain how underwriting costs and accounting and legal fees associated with the issuance of stock should be recorded.
For what reasons might a corporation purchase its own stock?
Discuss the propriety of showing:(a) Treasury stock as an asset.(b) “Gain” or “loss” on sale of treasury stock as additions to or deductions from income.(c) Dividends received on treasury
What features or rights may alter the character of preferred stock?
Dagwood Inc. recently noted that its 4% preferred stock and 4% participating preferred stock, which are both cumulative, have priority as to dividends up to 4% of their par value. Its participating
Where in the financial statements is preferred stock normally reported?
List possible sources of additional paid-in capital
Satchel Inc. purchases 10,000 shares of its own previously issued $10 par common stock for $290,000. Assuming the shares are held in the treasury with intent to reissue, what effect does this
Indicate how each of the following accounts should be classified in the stockholders’ equity section.(a) Common Stock(b) Retained Earnings(c) Paid-in Capital in Excess of Par Value(d) Treasury
What factors influence the dividend policy of a company?
What are the principal considerations of a board of directors in making decisions involving dividend declarations? Discuss briefly.
Dividends are sometimes said to have been paid “out of retained earnings.” What is the error, if any, in that statement?
Distinguish among: cash dividends, property dividends, liquidating dividends, and stock dividends.
Describe the accounting entry for a stock dividend, if any. Describe the accounting entry for a stock split, if any.
Stock splits and stock dividends may be used by a corporation to change the number of shares of its stock outstanding.(a) What is meant by a stock split effected in the form of a dividend?(b) From an
The following comment appeared in the notes of Colorado Corporation’s annual report: “Such distributions, representing proceeds from the sale of Sarazan, Inc. were paid in the form of partial
This comment appeared in the annual report of Mac Cloud Inc.: “The Company could pay cash or property dividends on the Class A common stock without paying cash or property dividends on the Class B
For what reasons might a company restrict a portion of its retained earnings?
How are restrictions of retained earnings reported?
Where can authoritative iGAAP guidance related to stockholders’ equity are found?
Briefly describe some of the similarities and differences between U.S. GAAP and iGAAP with respect to the accounting for stockholders’ equity.
Briefly discuss the implications of the financial statement presentation project for the reporting of stockholders’ equity.
McNabb Corp. had $100,000 of 7%, $20 par value preferred stock and 12,000 shares of $25 par value common stock outstanding throughout 2011.(a) Assuming that total dividends declared in 2011 were
Buttercup Corporation issued 300 shares of $10 par value common stock for $4,500. Prepare Buttercup’s journal entry.
Swarten Corporation issued 600 shares of no-par common stock for $8,200. Prepare Swarten’s journal entry if(a) The stock has no stated value, and(b) The stock has a stated value of $2 per share.
Wilco Corporation has the following account balances at December 31, 2010. Prepare Wilco's December 31, 2010, stockholders' equitysection.
Ravonette Corporation issued 300 shares of $10 par value common stock and 100 shares of $50 par value preferred stock for a lump sum of $13,500. The common stock has a market value of $20 per
On February 1, 2010, Buffalo Corporation issued 3,000 shares of its $5 par value common stock for land worth $31,000. Prepare the February 1, 2010, journal entry.
Moonwalker Corporation issued 2,000 shares of its $10 par value common stock for $60,000. Moonwalker also incurred $1,500 of costs associated with issuing the stock. Prepare Moonwalker’s journal
Sprinkle Inc. has outstanding 10,000 shares of $10 par value common stock. On July 1, 2010, Sprinkle reacquired 100 shares at $87 per share. On September 1, Sprinkle reissued 60 shares at $90 per
Arantxa Corporation has outstanding 20,000 shares of $5 par value common stock. On August 1, 2010, Arantxa reacquired 200 shares at $80 per share. On November 1, Arantxa reissued the 200 shares at
Hinges Corporation issued 500 shares of $100 par value preferred stock for $61,500. Prepare Hinges’s journal entry.
Wool ford Inc. declared a cash dividend of $1.00 per share on its 2 million outstanding shares. The dividend was declared on August 1, payable on September 9 to all stockholders of record on August
Cole Inc. owns shares of Marlin Corporation stock classified as available-for-sale securities. At December 31, 2010, the available-for-sale securities were carried in Cole’s accounting records at
Graves Mining Company declared, on April 20, a dividend of $500,000 payable on June 1. Of this amount, $125,000 is a return of capital. Prepare the April 20 and June 1 entries for Graves.
Green Day Corporation has outstanding 400,000 shares of $10 par value common stock. The corporation declares a 5% stock dividend when the fair value of the stock is $65 per share. Prepare the
Use the information from BE15-13, but assume Green Day Corporation declared a 100% stock dividend rather than a 5% stock dividend. Prepare the journal entries for both the date of declaration and the
Nottebart Corporation has outstanding 10,000 shares of $100 par value, 6% preferred stock and 60,000 shares of $10 par value common stock. The preferred stock was issued in January 2010, and no
During its first year of operations, Sitwell Corporation had the following transactions pertaining to its common stock.Jan. 10 Issued 80,000 shares for cash at $6 per share.Mar. 1 Issued 5,000 shares
Abernathy Corporation was organized on January 1, 2010. It is authorized to issue 10,000 shares of 8%, $50 par value preferred stock, and 500,000 shares of no par common stock with a stated value of
Twenty-five thousand shares reacquired by Pierce Corporation for $48 per share were exchanged for undeveloped land that has an appraised value of $1,700,000. At the time of the exchange the common
Fogelberg Corporation is a regional company which is an SEC registrant. The corporation’s securities are thinly traded on NASDAQ (National Association of Securities Dealers Quotes). Fogelberg has
Hartman Inc. issues 500 shares of $10 par value common stock and 100 shares of $100 par value preferred stock for a lump sum of $100,000.(a) Prepare the journal entry for the issuance when the
Loxley Corporation is authorized to issue 50,000 shares of $10 par value common stock. During 2010, Loxley took part in the following selected transactions.1. Issued 5,000 shares of stock at $45 per
Sanborn Company has outstanding 40,000 shares of $5 par common stock which had been issued at $30 per share. Sanborn then entered into the following transactions. 1. Purchased 5,000 treasury shares
Weisberg Corporation has 10,000 shares of $100 par value, 6%, preferred stock and 50,000 shares of $10 par value common stock outstanding at December 31, 2010.Answer the questions in each of the
Davison Inc. recently hired a new accountant with extensive experience in accounting for partnerships. Because of the pressure of the new job, the accountant was unable to review what he had learned
For a recent 2-year period, the balance sheet of Franklin Company showed the following stockholders' equity data at December 31 in millions. (a) Answer the following questions. (1) What is the par
The following are selected transactions that may affect stockholders' equity. 1. Recorded accrued interest earned on a note receivable. 2. Declared and distributed a stock split. 3. Declared a cash
Addison Corporation has ten million shares of common stock issued and outstanding. On June 1 the board of directors voted a 60 cents per share cash dividend to stockholders of record as of June 14,
The common stock of Warner Inc. is currently selling at $110 per share. The directors wish to reduce the share price and increase share volume prior to a new issue the per share par value is $10;
The stockholders’ equity accounts of Lawrence Company have the following balances on December 31, 2010.Common stock, $10 par, 200,000 shares issued and outstanding............$2,000,000Paid-in
The following data were taken from the balance sheet accounts of Wickham Corporation on December 31, 2010. Prepare the required journal entries for the following unrelated items. (a) A 5% stock
The following information has been taken from the ledger accounts of Sampras Corporation. Determine the current balance of retained earnings.
Teller Corporation's post-closing trial balance at December 31, 2010, was as follows. At December 31, 2010, Teller had the following number of common and preferred shares.The dividends on preferred
Elizabeth Company reported the following amounts in the stockholders' equity section of its December 31, 2010, balance sheet. During 2011, Elizabeth took part in the following transactions concerning
Shown below is the liabilities and stockholders' equity section of the balance sheet for Ingalls Company and Wilder Company. Each has assets totaling $4,200,000. For the year each company has earned
Presented below is information from the annual report of Potter Plastics, Inc. (a) Compute the return on common stock equity and the rate of interest paid on bonds. (Assume balances for debt and

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