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intermediate accounting volume 2
Questions and Answers of
Intermediate Accounting Volume 2
Yale Corporation issued to Zap Corporation \(\$ 60,000,8 \%\) (cash interest payable semiannually on June 30 and December 31) 10 -year bonds dated and sold on January 1, 2020. Assume that the company
For the Yale Corporation bonds in Brief Exercise 16-34, show how the bonds and related accounts would be presented in the balance sheet as of June 30, 2020.Exercise 16-34Yale Corporation issued to
Yale Corporation issued to Zap Corporation \(\$ 60,000,8 \%\) (cash interest payable semiannually on June 30 and December 31) 10 -year bonds dated and sold on January 1, 2020. Assume that the company
Lacey Corp. issued a three-year, \(\$ 5,000\) note with an \(8 \%\) stated rate to Hayley Co. on January 1, 2020, and received cash of \(\$ 5,000\). The note requires semiannual interest payments on
On January 1, 2020, Landry Inc. issued a three-year, \(\$ 5,000\), zero-interest-bearing note to Dillon LLP, and received \(\$ 4,198\). The implied interest rate is \(6 \%\) on this note transaction.
Fem Company purchased goods on January 1,2020 , and issued a two-year, \(\$ 2,500\) note with a \(5 \%\) stated rate. The fair value of the goods is \(\$ 2,366\). The note requires annual interest
On January 1, 2020, Allen Corp. issued a 3-year, zero-interest-bearing note payable for \(\$ 10,000\) to Town Corp. for a cash receipt of \(\$ 10,000\). In lieu of interest payments, Allen Corp.
On January 1, 2020, a borrower signed a long-term note, face amount \(\$ 50,000\) with time to maturity of 6 years. The interest rate is \(7 \%\) and equal annual installment payments will pay off
Darien Inc. redeemed \(\$ 5,000\) of its bonds at 102 on January 1, 2020. At this date, the unamortized discount was \(\$ 690\). Prepare the journal entry on January 1, 2020, for the bond redemption.
Stonewall Corporation issued \(\$ 20,000\) of \(5 \%, 10\)-year convertible bonds. Each \(\$ 1,000\) bond is convertible to 10 shares of common stock (par \$50) of Stonewall Corporation. The bonds
On December 1, 2020, Junction Company issued at 104, 4,000 of its \(9 \%, 10\)-year, \(\$ 1,000\) par value, nonconvertible bonds with detachable stock purchase warrants. Each bond carried two
Josie Corporation issued 10 -year, \(8 \%\) interest-bearing bonds payable at face value for \(\$ 10,000\) on January 1 , 2020. At that time, Josie Corporation elected to account for the bonds
Target Corporation reported the following amounts (in millions) in a recent Form 10-K.- Total assets: \(\$ 44,553\)- Total liabilities: \(\$ 28,322\)- Total noncurrent liabilities: \(\$ 15,545\)-
For each account \(a\) through \(m\) listed below, indicate the account type (asset, liability, or equity) and the financial statement (balance sheet or statement of comprehensive income) where the
For each of the following bond scenarios \(a\) through \(e\) described below, identify a bond type that applies.a. Harrison County Flood Control Improvement Bonds issued in the state of Texas.b.
On January 1, 2020, the following debt was authorized and issued by Anderson Company.1. \(\$ 50,000,5\)-year, \(9 \%\) convertible bonds payable, cash interest payable semiannually to yield \(10
Calculate the bond selling price for the three separate scenarios that follow.a. 33M Corp. authorized and issued \(\$ 100,000,6 \%, 20\)-year bonds payable on January 1, 2020. Calculate the selling
On May 1, 2020, Setup Inc. sold an issue of 5\%, \(\$ 1,000\) bonds dated January 1, 2020, to yield 5\%. The bonds pay interest every June 30 and December 31, and mature December 31, 2024.Requireda.
On October 1, 2020, New Co. issued an eight-year, \(6 \%, \$ 1,000\) bond at face value, with cash interest payable semiannually on April 1 and October 1.Required Provide journal entries to be made
On January 1,2020 , Williams Inc. issued 8 -year, \(\$ 50,000,5 \%\) bonds, priced to yield \(6 \%\), with cash interest payable semiannually on June 30 and December 31. The company amortizes the
On January 1, 2020, Williams Inc. issued 8-year, \(\$ 50,000,5 \%\) bonds, priced to yield \(6 \%\), with cash interest payable semiannually on June 30 and December 31. The company amortizes the bond
Mitchell Inc. issued 40, \(6 \%, \$ 1,000\) bonds on January 1,2020 , for \(\$ 38,950\). The bonds pay cash interest annually each December 31 and were issued to yield \(7 \%\). The bonds mature
Mitchell Inc. issued 40, 6\%, \(\$ 1,000\) bonds on January 1, 2020. The bonds pay cash interest semiannually each July 1, and December 31, and were issued to yield 7\%. The bonds mature December 31,
Refer to the information in Exercise 16-57. However, now assume that the interest payments are made on July 1 , and January 1.Requireda. Determine the selling price of the bonds.b. Prepare an
Mitchell Inc. issued \(40,6 \%, \$ 1,000\) bonds on January 1,2020 . The bonds pay cash interest semiannually each July 1 , and December 31 , and were issued to yield \(7 \%\). Debt issuance costs
Mitchell Inc. issued \(60,6 \%, \$ 1,000\) bonds on January 1,2020 . The bonds pay cash interest annually each December 31 and were issued to yield \(5 \%\). The bonds mature December 31, 2024, and
Mitchell Inc. issued \(60,6 \%, \$ 1,000\) bonds on January 1, 2020. The bonds pay cash interest semiannually each June 30, and December 31, and were issued to yield 5\%. The bonds mature December
Mitchell Inc., issued 40, \(6 \%, \$ 1,000\) bonds on January 1, 2020. The bonds pay cash interest semiannually each June 30 and December 31, and were issued to yield \(7 \%\). The bonds mature
Mitchell Inc., issued \(70,6 \%, \$ 1,000\) bonds on January 1,2020 . The bonds pay cash interest annually each January 1 (beginning January 1, 2021), and were issued to yield 4\%. The bonds mature
Master Corp. issued \(5 \%, \$ 300,000\) bonds on January 1, 2020. The bonds pay cash interest semiannually each July 1 and January 1, and were issued to yield \(6 \%\). The bonds mature January
Master Corp. issued \(8 \%, \$ 80,000\) bonds on February 1,2020 . The bonds pay interest semiannually each July 31 and January 31 and were issued to yield \(7 \%\). The bonds mature January 31,
For the following separate bond issues, assume that the bonds are sold on January 1, 2020, interest is paid semiannually on July 1 and December 31, and the bond term is 5 years.Required Complete the
Lathrop Inc. purchased equipment on January 1, 2020, for \(\$ 75,000\) cash plus a note payable. The fair value of the equipment on January 1,2020 , is \(\$ 271,333\). The market rate of interest is
On January 1, 2020, Jet Air Inc. contracted with Systems Plus Inc. to manufacture heavy equipment. Jet Air Inc. issued a \(\$ 75,000\) note to Systems Plus Inc. in exchange for the equipment that
On June 30, 2020, BMO Company purchased land for expansion with an assessed value of \(\$ 108,661\) by issuing a 5-year, zero-interest-bearing note. The face value of the note is \(\$
On January 1,2020 , a borrower signed a long-term note, face amount, \(\$ 100,000\); time to maturity, three years; stated rate of interest, \(8 \%\). The market rate of interest of \(10 \%\)
On March 1,2020 , Sandollar Inc. issued \(\$ 30,000\) of bonds at 105 , paying \(8 \%\) cash interest semiannually on June 30 and December 31. The bonds are scheduled to mature December 31, 2023. On
On January 1, 2020, Rocket Corporation issued \(\$ 250,000\) of \(6 \%, 20\)-year bonds at 98 . The interest is payable each December 31. Rocket uses straight-line amortization. The company's
Dillon Corp. issued \(\$ 100,000\) of \(6 \%\) (cash payable each December 31), 10 -year bonds on January 1, 2020. The bonds are callable at any point after 2024 at 103. The bonds sold on January 1,
Stonewall Corporation issued \(\$ 20,000\) of \(5 \%, 10\)-year convertible bonds. Each \(\$ 1,000\) bond is convertible to 10 shares of common stock (par \$50) of Stonewall Corporation. The bonds
On January 1,2020 , Sierra Corp. issued \(500, \$ 1,000,6 \%\) convertible bonds at face value. Each bond is convertible into 15 shares of \(\$ 1\) par value common stock. As an inducement to convert
Harley Corporation issued \(\$ 75,000\) of \(6 \%, 10\)-year, nonconvertible bonds with detachable stock purchase warrants. Each \(\$ 1,000\) bond carried 20 detachable warrants, each of which was
Target Shoppers Inc. reported cash sales of \(\$ 18,000\) for the month of June 2020. Sales taxes payable are recordeda. Assume that sales of Target Shoppers Inc. are subject to a \(6 \%\) sales tax.
On June 15, 2020, Red Buckle Inc. purchased merchandise for resale for \(\$ 12,000\) on credit terms \(2 / 10, \mathbf{n} / 30\). On June 20 , Red Buckle paid for the merchandise. Record the entry on
Jet Air Inc. collected \(\$ 300\) cash from a customer who purchased a one-way airline ticket on June 1, 2020, for a flight from Minneapolis to New York on August 15, 2020. Record the entry on June
Chica's Inc. sold a \(\$ 50\) gift card on February 1, 2020. The gift card was redeemed on February 14, 2020. Record the entries on (1) February 1 and (2) February 14 for Chica's Inc.
BSW Inc. had a weekly payroll of \(\$ 5,000\) for three employees with mandatory withholdings of social security tax \((7.65 \%)\), federal withholdings of \(\$ 1,000\), and state withholdings of
The following information relating to compensated absences was available from Graf Company's accounting records at December 31, 2020.- Employees' rights to vacation pay vest and are attributable to
On December 15, 2020, the board of directors of Limited Label Inc. approved a bonus payout of \(\$ 70,000\) to executives, based upon services performed in 2020. The bonus is payable on January 25,
On August 31, 2020, Pine Company issued a 9 -month, \(12 \%\) note payable to National Bank in the amount of \(\$ 900,000\). Interest is due at maturity. Record the entries for Pine Company on the
First Choice Company buys equipment on October 1, 2020, providing as payment a noninterest-bearing note for \(\$ 20,000\) to be paid one year from today. The equipment could be purchased for \(\$
The face value of commercial paper borrowings at December 31,2020 , was \(\$ 6\) million. The six-month loan originated on September \(1,2020\).a. Prepare the journal entry for issuance of the loan
Maple Leaf Co. has a \(\$ 50,000,5 \%, 10\)-year note issued July 31, 2011.a. How will the \(\$ 50,000\) be classified on the December 31,2020 , balance sheet?b. If the \(\$ 50,000\) is refinanced
On December 31, 2020, Mainstreet Inc. has a \$100,000 note payable due on demand or on June 30, 2025, whichever is earlier, to First Bank. The repayment of the note by First Bank is not expected at
Finisher Inc. sells merchandise of \(\$ 250,000\) in 2020 that includes a three-year limited warranty. Warranty costs are estimated to be \(1 \%\) of sales. The company incurred actual costs of \(\$
Madison Co. sells merchandise of \(\$ 250,000\) in 2020, along with a two-year warranty (for years 2020 and 2021) for \(\$ 25\) per product. Warranty costs are estimated to be \(0.5 \%\) of sales.
On November 5, 2020, a Dunn Corporation truck was in an accident with an auto driven by R. Bell. Dunn received notice on January 12, 2021, of a lawsuit for \(\$ 350,000\) in damages for personal
Pitt Company is the defendant in a lawsuit filed by Hoffman in 2020 disputing the validity of a copyright held by Pitt. At December 31, 2020, Pitt determined that Hoffman would probably be successful
The following information pertains to a fire insurance policy in effect during the calendar year 2020, covering Vail Company's inventory:Vail's inventory averages \(\$ 500,000\) uniformly throughout
Marathon Inc. estimates that it will be required to spend approximately \(\$ 40,000\) to remove an underground storage tank in 10 years that was constructed in 2020 for \(\$ 300,000\). The present
A manufacturer of household appliances has potential losses due to the discovery of a possible defect in one of its products. The occurrence of the loss is reasonably possible, and the costs can be
The Occupational Safety and Health Administration (OSHA) is in the process of conducting a workplace inspection at Kenny's Corp. to determine whether the company is in compliance with standards on
During the year, a driver for Commuters Inc. was involved in an accident. Commuters Inc. brought a suit against the negligent party for \(\$ 1\) million. The suit is pending on December 31, 2020.
In January 2021, an explosion occurred at Nilo Company's plant, causing damage to area properties. In March 2021, Nilo received notification of lawsuits filed against the company. Nilo's management
Compute the (1) current ratio and the (2) quick ratio for Nike, Inc. using the following excerpt from the balance sheet reported in a recent \(10-\mathrm{K}\) of Nike, Inc. At May 31 (in millions)
Cash sales for Zeviae Inc. in 2020 were \(\$ 9\) million. The majority of sales were subject to a sales tax rate of \(6 \%\). Zeviae records sales taxes payable at the point of sale.Requireda. Record
On September 1, 2020, Global Tech Inc. purchased merchandise for resale for \(\$ 8,000\) on credit terms \(2 / 15, \mathrm{n} / 60\) using the gross method and a perpetual inventory system. Global
Record the entries for the following transactions for Shoppers Inc. Shoppers uses a perpetual inventory system and records sales taxes payable at the point of sale.a. On January 1, 2020, Shoppers
Manchester Co. operates as a manufacturer of industrial equipment. On March 28, 2020, Manchester Co. required an advance payment of \(\$ 100,000\) from a customer on a special order of equipment. On
In 2020, Neighbor Co-Op Inc. sells 500 beverages in glass bottles and receives a \(\$ 1.00\) deposit for each returnable bottle sold. As of December 31, 2020, a total of 400 glass bottles were
Assume Ikeo Inc. sold \(\$ 100,000\) of gift cards during the last two weeks of December 2020. No gift cards were redeemed in 2020, while \(\$ 90,000\) of the gift cards were redeemed for store
Aloha Company has a personnel policy that allows each employee with at least one year's employment, 20 days vacation time and two holidays with regular pay. Unused days are carried over to the next
Utta Inc. allows each employee to earn 15 paid vacation days each year with full pay. Unused vacation time can be carried over to the next year. If not taken during the next year, unused vacation
Urban Fit Corporation paid salaries and wages of \(\$ 143,800\) to its employees for the month. Of this amount, \(\$ 3,800\) was paid to employees who had already exceeded wages of \(\$ 128,400\).
Bloy Company pays all salaried employees on a biweekly basis. Overtime pay, however, is paid in the following biweekly period. Bloy accrues salaries expense only at its December 31 year-end. Data
Anne Taylor Company borrowed cash on August 1, 2020, and signed a \(\$ 33,300\) (face amount), one-year note payable, due on July 31, 2021. The accounting period of Anne Taylor ends December 31.
Consider the following three separate scenarios for a one-year, \(\$ 100,000\) note payable issued on September \(1,2020\). Use the straight-line method to amortize any discount on note
Masy's Department Store supported its operations through short-term note financing in 2020 described as follows:May 10 The Company entered into a new credit agreement with certain financial
The following table includes five separate short-term note payable scenarios.Required For each separate scenario, complete the last column in the table by calculating interest expense accrued at the
On December 31, 2020, Millers Grocery Inc. had a 10 -year, \(7 \%\) note payable balance of \(\$ 100,000\). The note payable was originally issued on June 30, 2011. The company will issue its
During 2020, Ward Company introduced a new product carrying a two-year warranty against defects, which is included in the selling price of the product. The estimated warranty costs are \(2 \%\) of
Assume the same information in Exercise 15-61, except that the warranty is for three years and has a separate purchase price. The company collected \(\$ 20,000\), and \(\$ 35,000\) for this extended
Macy Furniture sells a line of products that carry a three-year warranty against defects at no extra charge. Based on industry experience, the estimated warranty costs are as follows: first year
Koll's Company is preparing its annual financial statements at December 31, 2020. During 2020, a customer fell while riding on the escalator and has filed a lawsuit for \(\$ 150,000\) because of a
Stony Electronics, an electronics manufacturer, includes battery packs with its laptop computers that it sells. After a year of sales of the product, management learns that the battery packs have the
Atlanta Corp. is preparing its 2020 financial statements (December 31 year-end) and is considering the following events:a. Probable warranty costs on the company's products are estimated to be \(1
Boston Scientific Corporation is a worldwide developer, manufacturer and marketer of medical devices that are used in a broad range of interventional medical specialties. In a recent annual report on
On January 17, 2021, an explosion occurred at a Cord Company plant, causing extensive property damage to area buildings. Although no claims had yet been asserted against Cord by March 10, 2021, the
The following transactions relate to topics in this chapter.a. Purchased inventory on account, terms \(2 / n, n / 30\), accounted for using the perpetual method.b. Collected sales taxes on a customer
The following transactions relate to topics in this chapter.a. Coupons published in a newspaper that may be redeemed for merchandise or service.b. Sales taxes payable.c. Probable requirements to
Atlas Inc. issues short-term interest-bearing notes and uses the proceeds to purchase inventory. The company's profits for the year remain unchanged.Required Indicate how the use of the notes would
The balance sheets for Red Oak Inc. and Birch Co. reflect the following:Required Calculate the following ratios and comment on the results.a. Current ratiob. Quick ratio Red Oak Birch Current assets
List and briefly explain the primary characteristics of long-term debt securities. What are the primary distinctions between a debt security and an equity security?
Explain the difference between the stated rate and the market rate on a long-term debt security.
How is the issue price of a zero-interest-bearing note payable determined?
Briefly explain the effects on interest recognized when the stated and market rates of interest are different.
What are the primary characteristics of a bond? What distinguishes it from capital stock?
Distinguish between the face value and the issue price of a bond. When are they the same? When are they different? Explain.
Explain the impact on interest of a bond discount and bond premium to (a) the issuer and (b) the investor.
Assume that a \(\$ 1,000,8 \%\) (payable semiannually), 10 -year bond is sold at a market rate of \(6 \%\). Explain how to compute the price of this bond.
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