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financial accounting information for decisions
Questions and Answers of
Financial Accounting Information For Decisions
Describe how each of the following characteristics of organizations applies to corporations. 1. Owner authority and control 5. Duration of life 2. Ease of formation 6. Owner liability 3.
The stockholders’ equity section of Montaigne Company’s balance sheet follows. The preferred stock’s call price is $40. Determine the book value per share of the common stock.Preferred
Foxboro Company expects to pay a $2.30 per share cash dividend this year on its common stock. The current market value of Foxboro stock is $32.50 per share. Compute the expected dividend yield on the
Compute Topp Company’s price-earnings ratio if its common stock has a market value of $32.60 per share and its EPS is $3.95. Would an analyst likely consider this stock potentially over- or
Epic Company earned net income of $900,000 this year. The number of common shares outstanding during the entire year was 400,000, and preferred shareholders received a $20,000 cash dividend. Compute
Murray Company reports net income of $770,000 for the year. It has no preferred stock, and its weightedaverage common shares outstanding is 280,000 shares. Compute its basic earnings per
Answer the following questions related to a company’s activities for the current year:1 A review of the notes payable files discovers that three years ago the company reported the entire amount of
On May 3, Zirbal Corporation purchased 4,000 shares of its own stock for $36,000 cash. On November 4, Zirbal reissued 850 shares of this treasury stock for $8,500. Prepare the May 3 and November 4
Stockholders’ equity of Ernst Company consists of 80,000 shares of $5 par value, 8% cumulative preferred stock and 250,000 shares of $1 par value common stock. Both classes of stock have been
The stockholders’ equity section of Jun Company’s balance sheet as of April 1 follows. On April 2, Jun declares and distributes a 10% stock dividend. The stock’s per share market value on April
Prepare journal entries to record the following transactions for Fletcher Corporation.May 15 Declared a $54,000 cash dividend payable to common stockholders.June 31 Paid the dividend declared on May
a. Prepare the journal entry to record Tamasine Company’s issuance of 5,000 shares of $100 par value 7% cumulative preferred stock for $102 cash per share.b. Assuming the facts in part 1, if
Prepare the issuer’s journal entry for each separate transaction. (a) On March 1, Atlantic Co. issues 42,500 shares of $4 par value common stock for $297,500 cash. (b) On April 1, OP Co. issues
Prepare the journal entry to record Autumn Company’s issuance of 63,000 shares of no-par value common stock assuming the shares:a. Sell for $29 cash per share.b. Are exchanged for land valued at
Prepare the journal entry to record Jevonte Company’s issuance of 36,000 shares of its common stock assuming the shares have a:a. $2 par value and sell for $18 cash per share.b. $2 stated value and
Prepare the journal entry to record Zende Company’s issuance of 75,000 shares of $5 par value common stock assuming the shares sell for:a. $5 cash per share.b. $6 cash per share.AppendixLO1
Of the following statements, which are true for the corporate form of organization?1 Ownership rights cannot be easily transferred.2 Owners have unlimited liability for corporate debts.3 Capital is
Refer to the financial statements for Apple in Appendix A. Did it issue or repurchase any common stock for the year ended September 25, 2004? Explain.AppendixLO1
Refer to the balance sheet for Circuit City in Appendix A. What is the par value per share of its common stock? Suggest a rationale for the amount of par value it assigned.AppendixLO1
Review the balance sheet for Best Buy in Appendix A and list the classes of stock that it has issued.AppendixLO1
How is book value per share computed for a corporation with no preferred stock? What is the main limitation of using book value per share to value a corporation?AppendixLO1
What is a stock option?AppendixLO1
How are EPS results computed for a corporation with a simple capital structure?AppendixLO1
Why do laws place limits on treasury stock purchases?AppendixLO1
How does the purchase of treasury stock affect the purchaser’s assets and total equity?AppendixLO1
Courts have ruled that a stock dividend is not taxable income to stockholders. What justifies this decision?AppendixLO1
What is the difference between a stock dividend and a stock split?AppendixLO1
How does declaring a stock dividend affect the corporation’s assets, liabilities, and total equity? What are the effects of the eventual distribution of that stock?AppendixLO1
Why is the term liquidating dividend used to describe cash dividends debited against paid-in capital accounts?AppendixLO1
Identify and explain the importance of the three dates relevant to corporate dividends.AppendixLO1
What is the difference between the par value and the call price of a share of preferred stock?AppendixLO1
What is the difference between the market value per share and the par value per share?AppendixLO1
Why would an investor find convertible preferred stock attractive?AppendixLO1
What is the difference between authorized shares and outstanding shares?AppendixLO1
List the general rights of common stockholders.AppendixLO1
What is the preemptive right of common stockholders?AppendixLO1
Who is responsible for directing a corporation’s affairs?AppendixLO1
How are organization expenses reported?AppendixLO1
What are organization expenses? Provide examples.AppendixLO1
A company’s shares have a market value of $85 per share. Its net income is $3,500,000, and its weighted-average common shares outstanding is 700,000. Its price-earnings ratio is:a. 5.9b. 425.0c.
A company paid cash dividends of $0.81 per share. Its earnings per share is $6.95 and its market price per share is $45.00.Its dividend yield is:a. 1.8%b. 11.7%c. 15.4%d. 55.6%e. 8.6%AppendixLO1
A company has 5,000 shares of $100 par preferred stock and 50,000 shares of $10 par common stock outstanding. Its total stockholders’ equity is $2,000,000. Its book value per common share is:a.
A company reports net income of $75,000. Its weightedaverage common shares outstanding is 19,000. It has no other stock outstanding. Its earnings per share is:a. $4.69b. $3.95c. $3.75d. $2.08e. $4.41
A corporation issues 6,000 shares of $5 par value common stock for $8 cash per share. The entry to record this transaction includes:a. A debit to Paid-In Capital in Excess of Par Value for $18,000.b.
When a company purchases treasury stock, (a) retained earnings are restricted by the amount paid; (b) Retained Earnings is credited; or (c) it is retired.AppendixLO1
How does treasury stock affect the authorized, issued, and outstanding shares?AppendixLO1
Southern Co. purchases shares of Northern Corp. Should either company classify these shares as treasury stock?AppendixLO1
Purchase of treasury stock (a) has no effect on assets; (b) reduces total assets and total equity by equal amounts; or (c) is recorded with a debit to Retained Earnings.AppendixLO1
A corporation has issued and outstanding (i) 9,000 shares of $50 par value, 10% cumulative, nonparticipating preferred stock and (ii) 27,000 shares of $10 par value common stock.No dividends have
Increasing the return to common stockholders by issuing preferred stock is an example of(a) Financial leverage. (b) Cumulative earnings. (c) Dividend in arrears.AppendixLO1
In what ways does preferred stock often have priority over common stock?AppendixLO1
What amount of retained earnings is capitalized for a small stock dividend?AppendixLO1
What distinguishes a large stock dividend from a small stock dividend?AppendixLO1
How does a stock dividend impact assets and retained earnings?AppendixLO1
When does a dividend become a company’s legal obligation?AppendixLO1
What three crucial dates are involved in the process of paying a cash dividend?AppendixLO1
What type of an account is the Common Dividend Payable account?AppendixLO1
Who is intended to be protected by minimum legal capital?AppendixLO1
What is a premium on stock?AppendixLO1
A company issues 7,000 shares of its $10 par value common stock in exchange for equipment valued at $105,000. The entry to record this transaction includes a credit to (a) Paid-In Capital in Excess
What is a proxy?AppendixLO1
Why is a corporation’s income said to be taxed twice?AppendixLO1
Which of the following is not a characteristic of the corporate form of business? (a) Ease of capital accumulation, (b) Stockholder responsibility for corporate debts, (c) Ease in transferability of
Record purchases and sales of treasury stock and the retirement of stock.AppendixLO1
Distribute dividends between common stock and preferred stock. (p. 453)AppendixLO1
Account for stock dividends and stock splits. (p. 450)AppendixLO1
Record transactions involving cash dividends. (p. 449)AppendixLO1
Record the issuance of corporate stock. (p. 446)AppendixLO1
Compute book value and explain its use in analysis.AppendixLO1
Compute dividend yield and explain its use in analysis. (p. 461)AppendixLO1
Compute price-earnings ratio and describe its use in analysis. (p. 461)AppendixLO1
Compute earnings per share and describe its use. (p. 460)AppendixLO1
Explain the items reported in retained earnings.AppendixLO1
Explain characteristics of common and preferred stock. (p. 453)AppendixLO1
Describe the components of stockholders’ equity. (p. 445)AppendixLO1
Identify characteristics of corporations and their organization. (p. 442)AppendixLO1
Algoma, Inc., signs a five-year lease for office equipment with Office Solutions. The present value of the lease payments is $15,499. Prepare the journal entry that Algoma records at the inception of
Madrid Company plans to issue 8% bonds on January 1, 2008, with a par value of $4,000,000. The company sells $3,600,000 of the bonds on January 1, 2008. The remaining $400,000 sells at par on March
Compute the debt-to-equity ratio for each of the following companies. Which company appears to have a riskier financing structure? Explain.Atlanta Company Spokane Company Total liabilities . . . . .
Enter the letter of the description A through H that best fits each term or phrase 1 through 8.A. Records and tracks the bondholders’ names.B. Is unsecured; backed only by the issuer’s credit
Murray Company borrows $340,000 cash from a bank and in return signs an installment note for five annual payments of equal amount, with the first payment due one year after the note is signed. Use
On January 1, 2008, the $2,000,000 par value bonds of Spitz Company with a carrying value of $2,000,000 are converted to 1,000,000 shares of $1.00 par value common stock. Record the entry for the
On July 1, 2008, Advocate Company exercises an $8,000 call option (plus par value) on its outstanding bonds that have a carrying value of $416,000 and par value of $400,000. The company exercises the
Using the bond details in both QS 10-1 and QS 10-2, confirm that the bonds’ selling prices given in each problem are approximately correct. Use the present value tables B.1 and B.3 in Appendix
Prepare the journal entry for the issuance of the bonds in both QS 10-1 and QS 10-2. Assume that both bonds are issued for cash on January 1, 2008.AppendixLO1
Garcia Company issues 10%, 15-year bonds with a par value of $240,000 and semiannual interest payments.On the issue date, the annual market rate for these bonds is 8%, which implies a selling price
Enviro Company issues 8%, 10-year bonds with a par value of $250,000 and semiannual interest payments.On the issue date, the annual market rate for these bonds is 10%, which implies a selling price
Describe the two basic types of pension plans.AppendixLO1
Compare and contrast an operating lease with a capital lease.AppendixLO1
When can a lease create both an asset and a liability for the lessee?AppendixLO1
Refer to the annual report for Apple in Appendix A. For the year ended September 25, 2004, did it raise more cash by issuing stock or debt?AppendixLO1
Refer to the statement of cash flows for Circuit City in Appendix A. For the year ended February 28, 2005, what was the amount of principal payments on long-term debt?AppendixLO1
Refer to Best Buy’s annual report in Appendix A. Is there any indication that Best Buy has issued bonds?AppendixLO1
What obligation does an entrepreneur (owner) have to investors that purchase bonds to finance the business?AppendixLO1
Describe the debt-to-equity ratio and explain how creditors and owners would use this ratio to evaluate a company’s risk.AppendixLO1
What is the issue price of a $2,000 bond sold at 981⁄4? What is the issue price of a $6,000 bond sold at 1011⁄2?AppendixLO1
If you know the par value of bonds, the contract rate, and the market rate, how do you compute the bonds’ price?AppendixLO1
Why does a company that issues bonds between interest dates collect accrued interest from the bonds’ purchasers?AppendixLO1
Does the straight-line or effective interest method produce an interest expense allocation that yields a constant rate of interest over a bond’s life? Explain.AppendixLO1
What factors affect the market rates for bonds?AppendixLO1
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