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Financial Accounting Tools for Business Decision Making 5th Edition Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso - Solutions

Peavler Corporation issues $400,000 of 9%, 5-year bonds on January 1, 2010, at 104. If Peavler uses the effective-interest method in amortizing the premium, will the annual interest expense increase or decrease over the life of the bonds? Explain.
Howland Company has these obligations at December 31: (a) A note payable for $100,000 due in 2 years, (b) A 10-year mortgage payable of $200,000 payable in ten $20,000 annual payments, (c) Interest payable of $15,000 on the mortgage, and (d) Accounts payable of $60,000. For each obligation,
Kile Company borrows $90,000 on July 1 from the bank by signing a $90,000, 8%, 1-year note payable. Prepare the journal entries to record (a) The proceeds of the note and (b) Accrued interest at December 31, assuming adjusting entries are made only at the end of the year.
Farm Supply does not segregate sales and sales taxes at the time of sale. The register total for March 16 is $11,395. All sales are subject to a 6% sales tax. Compute sales taxes payable and make the entry to record sales taxes payable and sales.
Hilman University sells 3,800 season basketball tickets at $80 each for its 10-game home schedule. Give the entry to record (a) The sale of the season tickets and (b) The revenue earned by playing the first home game.
Mahon Corporation issued 2,000 7%, 5-year, $1,000 bonds dated January 1, 2010, at face value. Interest is paid each January 1.(a) Prepare the journal entry to record the sale of these bonds on January 1, 2010.(b) Prepare the adjusting journal entry on December 31, 2010, to record interest
The balance sheet for Reading Company reports the following information on July 1, 2010.Reading decides to redeem these bonds at 102 after paying annual interest. Prepare the journal entry to record the redemption on July 1,2010.
Presented here are long-term liability items for Felkner Inc. at December 31, 2010. Prepare the long-term liabilities section of the balance sheet for Felkner Inc.Bonds payable, due 2014 .......$700,000Notes payable, due 2012 .........80,000Discount on bonds payable ........21,000
Presented here are liability items for Sheely Inc. at December 31, 2010. Prepare the liabilities section of Sheely€™s balancesheet.
The 2006 Adidas financial statements contain the following selected data (in millions).Compute the following values and provide a brief interpretation of each.(a) Working capital. (b) Current ratio. (c) Debt to total assets ratio.(d) Times interest earnedratio.
Upton Company issues $3 million, 10-year, 6% bonds at 99, with interest payable on December 31. The straight-line method is used to amortize bond discount. (a) Prepare the journal entry to record the sale of these bonds on January 1, 2010.(b) Prepare the journal entry to record interest expense and
Paine Inc. issues $4 million, 5-year, 8% bonds at 103, with interest payable on January 1. The straight-line method is used to amortize bond premium.(a) Prepare the journal entry to record the sale of these bonds on January 1, 2010.(b) Prepare the journal entry to record interest expense and bond
Presented below is the partial bond discount amortization schedule for Osaki Corp., which uses the effective-interest method of amortization.Instructions(a) Prepare the journal entry to record the payment of interest and the discount amortization at the end of period 1.(b) Explain why interest
During the month of February, Western Corporation’s employees earned wages of $74,000. Withholdings related to these wages were $4,200 for Social Security (FICA), $7,300 for federal income tax, and $1,800 for state income tax. Costs incurred for unemployment taxes were $110 for federal and $160
Melissa Hoadley and Kelly Quayle borrowed $16,000 on a 7-month, 9% note from Gopher State Bank to open their business, MK’s Coffee House. The money was borrowed on June 1, 2010, and the note matures January 1, 2011.Instructions(a) Prepare the entry to record the receipt of the funds from the
On May 15, Gott’s Outback Clothiers borrowed some money on a 4-month note to provide cash during the slow season of the year. The interest rate on the note was 8%. At the time the note was due, the amount of interest owed was $400.Instructions(a) Determine the amount borrowed by Gott’s.(b)
On June 1, Coble Company Ltd. borrows $40,000 from First Bank on a 6-month, $40,000, 9% note. The note matures on December 1.Instructions(a) Prepare the entry on June 1.(b) Prepare the adjusting entry on June 30.(c) Prepare the entry at maturity (December 1), assuming monthly adjusting entries have
In providing accounting services to small businesses, you encounter the following situations pertaining to cash sales.1. Grainger Company rings up sales and sales taxes separately on its cash register. OnApril 10 the register totals are sales $25,000 and sales taxes $1,750.2. Darby Company does not
During the month of March, Neufeld Company’s employees earned wages of $60,000. Withholdings related to these wages were $4,590 for Social Security (FICA), $7,500 for federal income tax, $3,100 for state income tax, and $400 for union dues. The company incurred no cost related to these earnings
Season tickets for the Longhorns are priced at $230 and include 20 games. Revenue is recognized after each game is played. When the season began, the amount credited to Unearned Season Ticket Revenue was $1,265,000. By the end of October, $759,000 of the Unearned Season Ticket Revenue had been
Teeter Company Ltd. publishes a monthly sports magazine, Fishing Preview. Subscriptions to the magazine cost $26 per year. During November 2010, Teeter sells 6,000 subscriptions for cash, beginning with the December issue. Teeter prepares financial statements quarterly and recognizes subscription
On September 1, 2010, Elmdale Corporation issued $600,000, 8%, 10-year bonds at face value. Interest is payable annually on September 1. Elmdale’s year-end is December 31.InstructionsPrepare journal entries to record the following events.(a) The issuance of the bonds.(b) The accrual of interest
On January 1 Kreitzer Company issued $300,000, 7%, 10-year bonds at face value. Interest is payable annually on January 1.InstructionsPrepare journal entries to record the following events.(a) The issuance of the bonds.(b) The accrual of interest on December 31.(c) The payment of interest on
Didde Company issued $400,000 of 8%, 20-year bonds on January 1, 2010, at face value. Interest is payable annually on January 1.InstructionsPrepare the journal entries to record the following events.(a) The issuance of the bonds.(b) The accrual of interest on December 31, 2010.(c) The payment of
The situations presented here are independent of each other.InstructionsFor each situation prepare the appropriate journal entry for the redemption of the bonds.(a) Garland Corporation retired $140,000 face value, 12% bonds on June 30, 2010, at 102. The carrying value of the bonds at the redemption
Edmonds, Inc. reports the following liabilities (in thousands) on its January 31, 2010, balance sheet and notes to the financial statements.Instructions(a) Identify which of the above liabilities are likely current and which are likely longterm. Say if an item fits in neither category. Explain the
McDonald's 2006 financial statements contain the following selected data (in millions).Instructions(a) Compute the following values and provide a brief interpretation of each.(1) Working capital.(2) Current ratio.(3) Debt to total assets ratio.(4) Times interest earned ratio.(b) The notes to
3M Company reported the following financial data for 2006 and 2005 ($ in millions).Instructions(a) Calculate the current ratio for 3M for 2006 and 2005.(b) Suppose that at the end of 2006 3M management used $300 million cash to pay off $300 million of accounts payable. How would its current
Lancer Boutique reported the following financial data for 2010 and 2009.Instructions(a) Calculate the current ratio for Lancer Boutique for 2010 and 2009.(b) Suppose that at the end of 2010, Lancer Boutique used $1.5 million cash to pay off $1.5 million of accounts payable. How would its current
Wal-Mart was sued nearly 5,000 times in a recent year—about once every twohours every day of the year. Wal-Mart has been sued for everything imaginable—ranging from falls on icy parking lots to injuries sustained in shoppers’ stampedes to a murder with a rifle purchased at Wal-Mart. Wal-Mart
Ellison Company issued $500,000, 7%, 20-year bonds on January 1, 2010, at 103. Interest is payable annually on January 1. Ellison uses straight-line amortization for bond premium or discount.InstructionsPrepare the journal entries to record the following events.(a) The issuance of the bonds.(b) The
Rooney Company issued $300,000, 8%, 10-year bonds on December 31, 2009, for $290,000. Interest is payable annually on December 31. Rooney uses the straight-line method to amortize bond premium or discount.InstructionsPrepare the journal entries to record the following events.(a) The issuance of the
Osage Corporation issued $600,000, 7%, 10-year bonds on January 1, 2010, for $559,740. This price resulted in an effective-interest rate of 8% on the bonds. Interest is payable annually on January 1. Osage uses the effective-interest method to amortize bond premium or discount.InstructionsPrepare
Pedigo Company issued $450,000, 7%, 10-year bonds on January 1, 2010, for $483,120. This price resulted in an effective-interest rate of 6% on the bonds. Interest is payable annually on January 1. Pedigo uses the effective-interest method to amortize bond premium or discount.InstructionsPrepare the
Kelso Co. receives $330,000 when it issues a $330,000, 8%, mortgage note payable to finance the construction of a building at December 31, 2010. The terms provide for semiannual installment payments of $21,123 on June 30 and December 31.InstructionsPrepare the journal entries to record the mortgage
On January 1, 2010, the ledger of Glennon Company contained these liability accounts.Accounts Payable .......$42,500Sales Taxes Payable .......6,600Unearned Service Revenue ...19,000During January the following selected transactions occurred.Jan. 1 Borrowed $15,000 in cash from Midland Bank on a
McCullough Corporation sells rock-climbing products and also operates an indoor climbing facility for climbing enthusiasts. During the last part of 2010, McCullough had the following transactions related to notes payable.Sept. 1 Issued a $12,000 note to Jernigan to purchase inventory. The 3-month
The following section is taken from Pickeril balance sheet at December 31, 2009. Current liabilitiesBond interest payable ............$ 40,000Long-term liabilitiesBonds payable, 8%, due January 1, 2013 ...500,000Interest is payable annually on January 1. The bonds are callable on any annual
On October 1, 2009, Havenhill Corp. issued $700,000, 7%, 10-year bonds at face value. The bonds were dated October 1, 2009, and pay interest annually on October 1. Financial statements are prepared annually on December 31.Instructions(a) Prepare the journal entry to record the issuance of the
Pettigrew Company sold $6,000,000, 8%, 20-year bonds on January 1, 2010. The bonds were dated January 1, 2010, and pay interest on December 31. The bonds were sold at 98.Instructions(a) Prepare the journal entry to record the issuance of the bonds on January 1, 2010.(b) At December 31, 2010, $6,000
You have been presented with the selected information taken from the financial statements of Southwest Airlines Co. shown on the next page.Note 8. LeasesThe majority of the Company€™s terminal operations space, as well as 84 aircraft, were under operating leases at December 31, 2006.
The following information is taken from Kuehn Corp.€™s balance sheet at December 31, 2009.Interest is payable annually on January 1. The bonds are callable on any annual interest date. Kuehn uses straight-line amortization for any bond premium or discount. From December 31, 2009, the
Lore Corporation sold $2,000,000, 6%, 10-year bonds on January 1, 2010. The bonds were dated January 1, 2010, and pay interest on January 1. Lore Corporation uses the straight-line method to amortize bond premium or discount. Instructions(a) Prepare all the necessary journal entries to record the
Kinzie Co. sold $3,000,000, 9%, 5-year bonds on January 1, 2010. The bonds were dated January 1, 2010, and pay interest on January 1. The company uses straight-line amortization on bond premiums and discounts. Financial statements are prepared annually.Instructions(a) Prepare the journal entries
On January 1, 2010, Irik Corporation issued $1,800,000 face value, 7%, 10- year bonds at $1,679,219. This price resulted in an effective-interest rate of 8% on the bonds. Irik uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest January
On January 1, 2010, Fair Company issued $3,000,000 face value, 8%, 10-year bonds at $3,441,605. This price resulted in a 6% effective-interest rate on the bonds. Fair uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest on each January
Dambro purchased a new piece of equipment to be used in its new facility. The $350,000 piece of equipment was purchased with a $50,000 down payment and with cash received through the issuance of a $300,000, 8%, 4-year mortgage note payable issued on October 1, 2010. The terms provide for quarterly
Stacy Button has just approached a venture capitalist for financing for her new business venture, the development of a local ski hill. On July 1, 2009, Stacy was loaned $120,000 at an annual interest rate of 7%. The loan is repayable over 5 years in annual installments of $29,267, principal and
On January 1, 2010, the ledger of Euler Company contained the following liability accounts.Accounts Payable ......$52,000Sales Taxes Payable ......8,500Unearned Service Revenue ..11,000During January the following selected transactions occurred.Jan. 1 Borrowed $18,000 from TriCounty Bank on a
Rockie Mountain Bikes markets mountain-bike tours to clients vacationing in various locations in the mountains of Colorado. In preparation for the upcoming summer biking season, Rockie entered into the following transactions related to notes payable.Mar. 1 Purchased Puma bikes for use as rentals
The following section is taken from Dorothy Corp.’s balance sheet at December 31, 2009.Current liabilitiesBond interest payable ............$ 96,000Long-term liabilitiesBonds payable, 8%, due January 1, 2014 ....1,200,000Interest is payable annually on January 1. The bonds are callable on any
On April 1, 2009, LRF Corp. issued $600,000, 7%, 5-year bonds at face value. The bonds were dated April 1, 2009, and pay interest annually on April 1. Financial statements are prepared annually on December 31.Instructions(a) Prepare the journal entry to record the issuance of the bonds.(b) Prepare
Star Electric sold $5,000,000, 9%, 20-year bonds on January 1, 2010. The bonds were dated January 1 and pay interest on January 1. The bonds were sold at 103. Instructions(a) Prepare the journal entry to record the issuance of the bonds on January 1, 2010.(b) At December 31, 2010, $7,500 of the
The following selected information was taken from the financial statements of Krispy Kreme Doughnuts, Inc.Note 10. Lease CommitmentsThe Company conducts some of its operations from leased facilities and, additionally, leases certain equipment under operating leases. Generally, these have initial
The following section is taken from Fanestill Oil Company's balance sheet at December 31, 2009.Interest is payable annually on January 1. The bonds are callable on any annual interest date. Fanestill uses straight-line amortization for any bond premium or discount. From December 31, 2009, the
Lester Company sold $2,500,000, 10%, 10-year bonds on January 1, 2010. The bonds were dated January 1, 2010, and pay interest on January 1. Lester Company uses the straight-line method to amortize bond premium or discount.Instructions(a) Prepare all the necessary journal entries to record the
Wylie Corporation sold $2,500,000, 7%, 20-year bonds on December 31, 2009. The bonds were dated December 31, 2009, and pay interest on December 31. The company uses straight-line amortization for premiums and discounts. Financial statements are prepared annually.Instructions(a) Prepare the journal
On January 1, 2010, Vineyard Corporation issued $2,000,000 face value, 12%, 10-year bonds at $2,245,783. This price resulted in an effective-interest rate of 10% on the bonds. Vineyard uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest January
On January 1, 2010, Jagard Company issued $4,000,000 face value, 10%, 15-year bonds at $3,455,131. This price resulted in an effective-interest rate of 12% on the bonds. Jagard uses the effective-interest method to amortize bond premium or discount. The bonds pay annual interest January
Donald Corporation purchased a new piece of equipment to be used in its new facility. The $450,000 piece of equipment was purchased with a $50,000 down payment and with cash received through the issuance of a $400,000, 8%, 4-year mortgage note payable issued on October 1, 2010. The terms provide
Keith Pryor has just approached a venture capitalist for financing for his sailing school. The venture capitalist is willing to loan Keith $90,000 at a high-risk annual interest rate of 24%. The loan is payable over 3 years in monthly installments of $3,531. Each payment includes principal and
Aber Corporation€™s balance sheet at December 31, 2009, is presented below.During 2010, the following transactions occurred.1. Aber paid $3,000 interest on the bonds on January 1, 2010.2. Aber purchased $241,100 of inventory on account.3. Aber sold for $450,000 cash inventory which cost
The financial statements of Hershey Foods are presented in Appendix B, following the financial statements for Tootsie Roll Industries in Appendix A.Instructions(a) Based on the information contained in these financial statements, compute the current ratio for 2007 for each company.What
The May 8, 2008, edition of the Wall Street Journal contains an article by Heather Won Tesoriero titled “Oil Firms Settle Claims in MTBE Leak Cases.”InstructionsRead the article and answer the following questions.(a) In addition to paying $423 million in cash, the oil companies agreed to pay
On January 1, 2008, Colt Corporation issued $3,000,000 of 5-year, 8% bonds at 97. The bonds pay interest annually on January 1. By January 1, 2010, the market rate of interest for bonds of risk similar to those of Colt Corporation had risen. As a result the market value of these bonds was
Leon Housten, president of Kosko, Inc., is considering the issuance of bonds to finance an expansion of his business. He has asked you to do the following: (1) Discuss the advantages of bonds over common stock financing, (2) Indicate the types of bonds he might issue, and (3) Explain the issuing
Thomas, a student, asks your help in understanding some characteristics of a corporation. Explain each of these to Thomas.(a) Separate legal existence.(b) Limited liability of stockholders.(c) Transferable ownership rights.
(a) Your friend N. J. Golde cannot understand how the characteristic of corporate management is both an advantage and a disadvantage.Clarify this problem for N. J.(b) Identify and explain two other disadvantages of a corporation.
Kim Brown believes a corporation must be incorporated in the state in which its headquarters office is located. Is Kim correct? Explain.
What are the two principal components of stockholders’ equity?
The corporate charter of Earl Corporation allows the issuance of a maximum of 100,000 shares of common stock. During its first 2 years of operation, Earl sold 70,000 shares to shareholders and reacquired 4,000 of these shares. After these transactions, how many shares are authorized, issued, and
Geitz, Inc. purchases 1,000 shares of its own previously issued $5 par common stock for $11,000. Assuming the shares are held in the treasury, what effect does this transaction have on (a) Net income,(b) Total assets,(c) Total paid-in capital, and(d) Total stockholders’ equity?
Three dates associated with Copp Company’s cash dividend are May 1, May 15, and May 31. Discuss the significance of each date and give the entry at each date.
Diane Barone asks, “Since stock dividends don’t change anything, why declare them?” What is your answer to Diane?
Henke Corporation has 10,000 shares of $15 par value common stock outstanding when it announces a 3-for-1 split. Before the split, the stock had a market price of $120 per share. After the split, how many shares of stock will be outstanding, and what will be the approximate market price per share?
What was the total cost of Tootsie Roll’s treasury stock at December 31, 2007? What was the amount of the 2007 cash dividend? What was the total charge to Retained Earnings for the 2007 stock dividend?
Fry Inc.’s common stock has a par value of $1 and a current market value of $15. Explain why these amounts are different.
Emig Corp. has a return on assets ratio of 12%. It plans to issue bonds at 8% and use the cash to repurchase stock. What effect will this have on its debt to total assets ratio and on its return on common stockholders’ equity?
Rita Valdez is planning to start a business. Identify for Rita the advantages and disadvantages of the corporate form of business organization.
On May 10 Troyer Corporation issues 2,000 shares of $5 par value common stock for cash at $13 per share. Journalize the issuance of the stock.
On June 1 Penner Inc. issues 3,000 shares of no-par common stock at a cash price of $6 per share. Journalize the issuance of the shares.
Farris Inc. issues 8,000 shares of $100 par value preferred stock for cash at $108 per share. Journalize the issuance of the preferred stock.
Longacre Corporation has 5,000 shares of common stock outstanding. It declares a $1 per share cash dividend on November 1 to stockholders of record on December 1. The dividend is paid on December 31. Prepare the entries on the appropriate dates to record the declaration and payment of the cash
The stockholders’ equity section of Platt Corporation’s balance sheet consists of common stock ($10 par) $1,000,000 and retained earnings $300,000. A 10% stock dividend (10,000 shares) is declared when the market value per share is $19. Show the before and after effects of the dividend on (a)
Moran Corporation has these accounts at December 31: Common Stock, $10 par, 5,000 shares issued, $50,000; Paid-in Capital in Excess of Par Value $18,000; Retained Earnings $42,000; and Treasury Stock—Common, 500 shares, $12,000. Prepare the stockholders’ equity section of the balance sheet.
Matt Kifer, president of Kifer Corporation, believes that it is a good practice for a company to maintain a constant payout of dividends relative to its earnings. Last year net income was $600,000, and the corporation paid $120,000 in dividends. This year, due to some unusual circumstances, the
Leiker Corporation has 200,000 shares of $10 par value common stock outstanding. It declares a 10% stock dividend on December 1 when the market value per share is $17. The dividend shares are issued on December 31. Prepare the entries for the declaration and distribution of the stock dividend.
Caribbean Corporation began operations on April 1 by issuing 60,000 shares of $5 par value common stock for cash at $13 per share. Journalize the issuance.
Chiapas Corporation purchased 2,000 shares of its $10 par value common stock for $120,000 on August 1. It will hold these in the treasury until resold. Journalize the treasury stock transaction.
Connolly Corporation has issued 100,000 shares of $5 par value common stock. It was authorized 500,000 shares. The paid-in capital in excess of par value on the common stock is $287,000. The corporation has reacquired 7,000 shares at a cost of $46,000 and is currently holding those shares.The
During its first year of operations, Privat Corporation had these transactions pertaining to its common stock.Jan. 10 Issued 70,000 shares for cash at $5 per share.July 1 Issued 40,000 shares for cash at $7 per share.Instructions(a) Journalize the transactions, assuming that the common stock
Noble Co. had these transactions during the current period. June 12 Issued 80,000 shares of $1 par value common stock for cash of $300,000.July 11 Issued 3,000 shares of $100 par value preferred stock for cash at $104 per share.Nov. 28 Purchased 2,000 shares of treasury stock for
Tovar Corporation is authorized to issue both preferred and common stock. The par value of the preferred is $50. During the first year of operations, the company had the following events and transactions pertaining to its preferred stock.Feb. 1 Issued 60,000 shares for cash at $51 per share.July 1
The stockholders’ equity section of Sundberg Corporation’s balance sheet at December 31 is presented here.SUNDBERG CORPORATIONBalance Sheet (partial)Stockholders’ equityPaid-in capitalPreferred stock, cumulative, 10,000 shares authorized,6,000 shares issued and outstanding ..........$
Zerbe Corporation 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 earlier about corporation accounting. During the first month, he made the following entries for
On January 1 Trear Corporation had 60,000 shares of no-par common stock issued and outstanding. The stock has a stated value of $5 per share. During the year, the following transactions occurred.Apr. 1 Issued 8,000 additional shares of common stock for $11 per share.June 15 Declared a cash
On October 31 the stockholders’ equity section of Lynch Company’s balance sheet consists of common stock $648,000 and retained earnings $400,000. Lynch is considering the following two courses of action: (1) Declaring a 5% stock dividend on the 81,000 $8 par value shares outstanding or (2)
Wells Fargo & Company, headquartered in San Francisco, is one of the nation’s largest financial institutions. It reported the following selected accounts (in millions) as of December 31, 2006.Retained earnings ........................$35,277Preferred stock ..........................384Common
The following stockholders’ equity accounts, arranged alphabetically, are in the ledger of Kenton Corporation at December 31, 2010.Common Stock ($5 stated value) ................$2,000,000Paid-in Capital in Excess of Par Value—Preferred Stock .........45,000Paid-in Capital in Excess of Stated
The following accounts appear in the ledger of Rosswell Inc. after the books are closed at December 31, 2010.Common Stock (no-par, $1 stated value, 400,000 sharesauthorized, 250,000 shares issued) .................$ 250,000Paid-in Capital in Excess of Stated Value—Common Stock

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