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financial reporting
Contemporary Issues In Financial Reporting A User Oriented Approach 1st Edition Paul Rosenfield - Solutions
____ Earnings per share is one of the most watched metrics of a corporation.
____ Common stockholders are usually permitted to vote for a corporation’s board of directors, but preferred stockholders are not.
____ Sole proprietorships are easier to form than corporations.
Why would a company be required to report diluted earnings per share?
How is basic earnings per share determined?
How is a company’s price-earnings ratio calculated?
How is return on equity calculated?
Why do corporations issue stock dividends?
What is the difference in accounting between a small stock dividend and a large stock dividend?
What is a stock dividend?
What is a cumulative dividend?
What is a dividend?
Give three reasons a corporation might want to buy back its own stock.
What is treasury stock?
Why is preferred stock called “preferred”?
Explain the meaning of “par value” of a share of stock.
Define “outstanding” shares of common stock.
Define “issued” number of shares of common stock.
Define “authorized” number of shares of common stock.
List three rights normally held by common stockholders.
Define “common stock.”
Explain the “double taxation” concept as it applies to corporations.
What liability do stockholders have for a corporation’s debts?
What is the process for incorporating a business?
How does the number of owners differ among the three forms?
What are the three legal forms of business?
Myrtle Inc. begins 20X8 with liabilities of $456,000 and owners’ equity of$320,000. On the first day of 20X8, the following occur:o Myrtle enters into an operating lease where it agrees to pay$50,000 per month for warehouse space.o Myrtle borrows $103,000 from Community Bank.o Owners’ invest an
Lori Company borrowed $10,000 from Secure Bank on January 1, 20X9. The interest rate on the loan is 6 percent annually. Lori also signed a five-year capital lease on January 1, 20X9. The payments are $5,000 each January 1, beginning with the current one. Lori’s incremental borrowing rate is 6
In several past chapters, we have met Heather Miller, who started her own business, Sew Cool. The financial statements for December are shown below.Based on the financial statements determine the following:a. Debt-to-equity ratiob. Times interest earned Figure 15.18Sew Cool Financial Statements Sew
Rollins Company purchased stock in Yuma Corporation for $40,000. Rollins considered this purchase to be a trading security. At the end of the year, Rollin’s investment in Yuma yielded an unrealized gain of $8,000. While the $8,000 unrealized gain must be reported on this year’s income
Landon Corporation has decided to rent crew trucks rather than purchasing them. On April 1, 20X5, Landon enters into an agreement with TuffEnough Trucks to lease three trucks worth $200,000. The lease agreement will span six years and the life of the trucks is estimated to be seven years.
Ralph Corporation agreed to lease a piece of equipment to Amy Company on January 1, 20X4. The following info relates to the lease:o The lease term is five years, at the end of which time the equipment will revert back to Ralph. The life of the equipment is six years.o The fair value of the
United Company leases an office space in a downtown building. This qualifies as an operating lease. United pays $30,000 in advance for rent every quarter. Record journal entries for United for the following:a. United pays $30,000 for the last quarter (three months) of the year on October 1.b. Rent
Fargo Corporation earns revenue in 20X2 that will be reported on its 20X2 income statement, but will not be reported on its tax return until 20X4. The revenue amounts to $800,000 and Fargo’s tax rate is 40 percent. Which of the following is a true statement?a. Fargo should report a deferred tax
Hyde Corporation has long-term liabilities, such as bonds, notes and leases, for which interest expense must be accrued. During 20X7, Hyde had earnings before interest and taxes of $45,890 and interest expense of$9,920. Which of the following is Hyde’s times interest earned?a. 1.28 timesb. 21.6
Which of the following is true concerning leases?a. Lessees would prefer to classify a lease as a capital lease than as an operating lease.b. Capital lease liabilities are shown at their present value.c. Interest is recorded on both capital and operating leases.d. Most capital leases are ordinary
Myers Company leases a boat on January 1, 20X9. The lease qualifies as a capital lease. The lease covers four years, with payments of $20,000 annually, beginning on January 1, 20X9. The expected life of the boat is six years. Myers incremental borrowing rate is 4 percent. What amount of
Which of the following concerning deferred tax liabilities are true?a. Deferred tax liabilities are created when an event occurs now that leads to lower income tax payments in the future.b. Deferred tax liabilities represent money a company will never have to pay in taxes.c. Deferred tax
Which of the following is not a true statement about postretirement benefits?a. A company’s liability for postretirement benefits is difficult to estimate.b. An expense for an employee’s future benefits should be recognized during the period the employee helps generate income(the matching
Sellers Corporation has assets of $450,000 and liabilities of $200,000. What is Sellers’ debt-to-equity ratio?a. 0.80 to 1.00b. 1.25 to 1.00c. 2.25 to 1.00d. 0.44 to 1.00
The lease covers two years and the life of the equipment is four years. There is no bargain purchase option, the equipment does not transfer to Charlotte at the end of the lease, and the payments do not approximate the fair value of the equipment. The payments are $4,000 due each February 1,
Charlotte Company leases a piece of equipment on February
Which of the following is not a criterion that triggers capital lease recording?a. Lease covers at least 75 percent of an asset’s lifeb. Lease contains a bargain purchase optionc. Payments cover at least 50 percent of the asset’s fair valued. Asset transfers to lessee at end of lease
____ Actuaries are business professionals who deal with risk.
____ Depreciation and interest are recorded by a lessee under a capital lease, but not an operating lease.
____ The only postretirement benefit typically paid by companies is pensions.
____ The goals of financial reporting and income tax reporting are not the same.
____ Lessees usually prefer to record leases as operating leases rather than capital leases.
____ Postretirement benefits are not expensed until they are paid.
____ A lease must meet at least two of the criteria set down in Statement of Financial Accounting Standard 13 to be a capital lease.
____ Postretirement benefits are some of the largest estimates on financial statements.
____ Because taxable income is lower in the current period, a deferral of income recognition is called a deferred tax asset.
____ A lessee recording a lease as a capital lease will record depreciation on the leased property.
How is a company’s times interest earned determined?
How is a company’s debt-to-equity ratio calculated?
Give two examples of postretirement benefits.
Define “postretirement benefits.”
Define “deferred tax liability.”
Why do deferred tax liabilities exist?
Define “incremental borrowing rate.”
How many of the four criteria must be met to require capital lease accounting?
Briefly list the four criteria that require capital lease reporting by a lessee.
Define “operating lease.”
Define “capital lease.”
Define “off-balance sheet financing.”
Name the two types of leases from a lessee’s perspective.
Who are the parties involved in a lease?
Define “lease.”
Chyrsalys Corporation issues $4,000,000 in serial bonds on January 1, 20X5, with a stated interest rate of 3 percent. On this date, investors demand an effective interest rate of 4 percent. The bond terms specify that interest and $2,000,000 in principal will be paid on January 1, 20X6 and 20X7.a.
Fitzgerald Corporation issues a $3,000,000 in serial bonds on August 1, 20X2. The terms are as follow:o Time to maturity: three years o Stated and effective interest rate: 7 percent, paid annually on August 1 o Principal to be repaid at the end of each year: $1,000,000 o Determine the journal
The market value on the date of issuance was 6 percent. Record all necessary journal entries on the following dates:a. The issuance of the bonds on May 1, 20X3b. The payment of interest on June 30, 20X3c. The payment of interest on December 31, 20X3
Collins Company issues term bonds with a face value of $100,000 on May 1, 20X3. The bonds have a stated rate of interest of 4 percent and a life of ten years. They pay interest semiannually on June 30 and December
The market value on the date of issuance was 9 percent. Record all necessary journal entries on the following dates.a. How much would investors be willing to pay for the bonds on January 1, 20X1?b. Determine the amount of each annual cash interest payment.c. How much interest expense would Jaguar
Jaguar Corporation issues term bonds with a face value of $300,000 on January 1, 20X1. The bonds have a stated rate of interest of 7 percent and a life of four years. They pay interest annually on December
Keller Corporation offers a zero-coupon bond of $80,000 on January 1, 20X5. It will come due on December 31, 20X7. Potential bondholders and Keller negotiate an annual interest rate of 7 percent on the bonds.a. Determine the amount the bondholders would be willing to pay on January 1, 20X5.b.
Assume the same facts as in problem 2 above, but instead of issuing the bonds on April 1, 20X4, the bonds are issued on July 1, 20X4. Record the journal entry necessary for each of the following.a. The issuance of the bondsb. The payment of interest on October 1, 20X4c. The interest accrual on
Record the journal entry necessary for each of the following:a. The issuance of the bondsb. The payment of interest on October 1, 20X4c. The interest accrual on December 31, 20X4d. The payment of interest on April 1, 20X4
Colson Corporation issues bonds to finance an expansion of its hot swimwear line. The $50,000 in bonds is issued on April 1, 20X4 and pay interest in the amount of 5 percent annually. Interest payments are made semiannually, every April 1 and October
Joni Corporation borrows $500,000 from Friendly Bank on February 1, 20X8. The principal will not be repaid until the end of six years, but interest payments are due every February 1 and August 1.The interest rate is 4 percent annually. Record the journal entry necessary for each of the following:a.
The bonds mature ten years from now. What amount would bondholders be willing to pay Krystal on January 1 for the bonds?a. $100,000b. $85,123c. $85,280d. $140,000
The effective rate of interest on that date was 6 percent and interest is paid semiannually on June 30 and December
Krystal Corporation issued $100,000 with a 4 percent stated rate of interest on January
Which of the following refers to an asset a creditor could take from a debtor if the debtor fails to pay back a loan?a. Interestb. Securityc. Covenantd. Maturity
Which of the following is not a reason companies borrow money?a. To raise needed fundsb. Interest is tax deductiblec. Creditors have no control over the companyd. Creditors do not become owners in the company
Which of the following is an agreement which debtors sign as part of getting a loan that serves to protect a creditor?a. Securityb. Term bondc. Leveraged. Covenant
When the bonds are issued on September 1, how much cash will the company collect?a. $105,000b. $1,050c. $106,050d. $103,950
The annual interest rate is 6 percent and interest is paid on the bonds every June 30 and December
Kitten Inc. issued $105,000 in bonds on September
Which of the following is not a type of bond?a. Maturityb. Zero couponc. Seriald. Term
____ The maturity value of a bond is amount that the company will need to repay.
____ A debenture is a debt that is not secured.
____ Companies must use the effective interest rate method to compute and record interest.
____ When a company issues a bond between interest dates, the first interest payment will be lower.
____ Debt covenants exist to product the creditor.
____ Financial leverage refers to a company’s ability to pay its debts off early, avoiding interest payments.
____ Banks typically charge stronger companies higher interest rates than weaker ones because the strong companies can better afford it.
____ A company’s creditors can force it into bankruptcy if it can’t pay its debts.
____ One advantage of debt financing is that interest is tax deductible.
____ Zero coupon bonds are so named because companies do not record interest expense on them.
How do a term bond and a serial bond differ?
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