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financial reporting
Contemporary Issues In Financial Reporting A User Oriented Approach 1st Edition Paul Rosenfield - Solutions
Define “effective interest rate.”
Define “zero coupon” bond.
Why are covenants included in loan agreements?
Define “debenture.”
Define “security.”
What are some of the ways a note or bond repayment can be structured?
Define “face value” of a note or bond.
How do notes and bonds differ?
Define “bond.”
Define “note.”
Name three advantages of financing with debt.
What is bankruptcy?
What are some of the risks for a company of holding debt?
In several past chapters, we have met Heather Miller, who started her own business, Sew Cool. The financial statements for December are shown below. To calculate age of accounts payable, assume that beginning inventory on 6/1/20X8, when Sew Cool started business, was zero.Also, assume that Sew Cool
The Eyes Have It sells custom eyewear with a one-year embedded warranty. Customers may purchase an extended one-year warranty beyond that. During 20X7, the company sold 52,000 pairs of eyeglasses for$1,000,000. Customers who purchased 75 percent of those pairs also purchased the one-year extended
Ingalls Company is a fine jeweler located in a mall in a midsize city. During December 20X4, an unfortunate accident happens. Mrs. Rita Yeargin trips over a giant, singing Rudolph set up by the mall management company and went sprawling into Ingalls’ store where she cracked her head on a display
OK Buy sells gift cards in various denominations. The company likes to sell these because it receives the cash immediately, but knows that a certain percentage will never be redeemed for merchandise. On December 1, OK Buy had a balance in unearned revenue from sales of gift cards of $728,000.a.
Knockoff Corporation makes a videogame unit known as the Gii. During the month of June, the following transactions occurred. Record any necessary journal entries for a–e.a. Knockoff purchased $300,000 of raw materials inventory on account.b. The company incurs salary expense of $45,000, which
Which of the following is not a criterion that must be met for an item to be classified as a liability?a. It is a certain future sacrificeb. The sacrifice is from the entity’s assets or servicesc. It is a probable future sacrificed. It arises from a present obligation that results from a past
Maxout Company sells computers. The computers have an embedded oneyear warranty, but customers may choose to buy an extended warranty that covers the computer for two years beyond that. The cost of the extended warranty is $200. What journal entry would Maxout make at the end of the second year
The following figures appeared on Whazzit’s financial statements for the year:Cost of goods sold $1,968,000 Beginning inventory 238,000 Ending inventory 249,000 Accounts payable 167,000 What was Whazzit’s age of accounts payable?a. 31.1 dayb. 47.9 daysc. 42.3 daysd. 30.8 days
Watkins Inc. has the following assets:Cash $400 Inventory $730 Prepaid Rent $460 Equipment $4,000 It has the following liabilities Accounts Payable $560 Unearned revenue $200 Long-term Note Payable $3,500 What is Watkins’ current ratio?a. 1.31b. 1.49c. 2.09d. 1.14
Reporting contingent losses but not contingent gains is an example of which accounting principle?a. Matchingb. Conservatismc. Going concernd. Cost/benefit
Sierra Inc. manufacturers environmentally friendly appliances. It offers a two-year warranty standard. In Year 1, Sierra sold 450,000 toasters. Past experience has told Sierra that approximately 4 percent of the toasters require repair at an average cost of $10 each. During Year 1, Sierra actually
Which of the following is not normally a current liability?a. Accounts payableb. Bonds payablec. Interest payabled. Income taxes payable
____ Liabilities for gift cards and similar items must be kept on the balance sheet until they are redeemed, regardless of how long that takes.
____ Unearned revenue and accounts receivable are examples of current liabilities.
____ Age of accounts payable can help users determine if a company is having trouble paying its bills.
____ Contingent liabilities should be reported on the balance sheet if they are both probable and can be reasonably estimated.
____ When estimating its warranty liability, a company should consider things like the state of the economy.
____ Embedded and extended warranties should be accounted for in the same way.
____ Restatement of financial statements should occur if a company attempts to mislead investors by understating its liabilities.
____ A long-term note payable is an example of a current liability.
____ A current ratio of less than one means that a company has more current assets than current liabilities.
____ Contingent gains should only be recorded if they are probable and can be reasonably estimated.
How is the age of accounts payable calculated?
How should a company go about estimating liabilities like product warranties?
How are contingent gains reported?
How would a company report a contingency where the chance of loss is“remote”?
How would a company report a contingency that is “reasonably possible”?
Give three examples of possible contingencies that a company would report.
What two criteria must be met for a company to record a contingency?
Define “commitments.”
How do companies account for gift cards it has sold?
What are “accrued liabilities”?
What are the three characteristics of liabilities according to FASB?
How is a company’s current ratio calculated?
Why are financial statement users particularly concerned about the amount of current liabilities a company has?
Why is it important that a company be able to pay its liabilities as they come due?
Give an example of a current liability and a noncurrent liability.
What is the difference between a current liability and a noncurrent liability?
In several past chapters, we have met Heather Miller, who started her own business, Sew Cool. The financial statements for December are shown below. To calculate average total assets, assume that total assets on 6/1/20X8, when Sew Cool started business, were zero.Based on the financial statements
Teckla Corporation purchases all the outstanding stock of Feather Company on 1/1/X3 for $5,000,000. Teckla’s balance sheet on that date before the purchase looked like this:On 1/1/X3, Feather has the following assets and liabilities:a. Determine any goodwill that Teckla will show on its
On March 1, 20X8, Current Properties paid $1,000,000 for 25 percent of the shares of Sealy Enterprises. Current exerts significant influence over Sealy.a. Sealy reported earnings of $400,000 during 20X8. Record this journal entry for Current.b. Sealy paid dividends of $50,000 during October 20X8.
Oregon Company, a paper products manufacturer, wishes to enter the Canadian market. The company purchased 30 percent of the outstanding stock of Canadian Paper Inc. on January 1 for $6,000,000. The CEO of Oregon will sit on the board of directors of Canadian, and other evidence of significant
On April 16, Yowza Inc. purchased 900 shares of Cool Company stock when Cool’s stock was selling for $15 per share. Yowza plans to hold this stock for more than a year.On December 31, Yowza prepares its financial statements. Cool’s stock is selling for $20 per share.a. Determine the unrealized
Record the journal entry for each event below:a. Christopher Corporation purchases 1,000 shares of stock in Alpha Company for $30 per share on 7/1/X9. This investment is considered an available-for-sale security.b. On 9/30/X9, Christopher prepares quarterly financial statements.At this date, Alpha
On March 1, Johnson Inc. purchased 500 shares of Thomas Company stock when Thomas’ stock was selling for $20 per share. Johnson plans to hold this stock for a short time and hopefully sell it for a gain.On December 31, Johnson prepares its financial statements. Thomas’ stock is selling for $18
Record the journal entry for each event below:a. Investor Corporation purchases 600 shares of stock in Company A for $60 per share on 1/1/X7. This investment is considered a trading security.b. On 3/31/X7, Investor prepares quarterly financial statements. At this date, A is selling for $63 per
On 12/31/X2, Brenda Corporation purchased Kyle Inc. for $3,400,000. Kyle had one asset, a trademark, whose fair value ($45,000) exceeded its book value ($15,000) by $30,000. The trademark has a remaining useful life of five years. Goodwill was also recorded in this purchase in the amount
Lancaster Inc. purchases all the outstanding stock of Lucy Company for$4,500,000. The net assets of Lucy have a fair value of $2,900,000, including a patent with a book value of $4,700 and a fair value of $159,000. At what amount should the patent and any goodwill from this purchase be shown on
Hydro Company and Aqua Corporation are in the same industry. During 20X9, Hydro had average total assets of $35,000 and sales of $47,800. Aqua had average total assets of $49,000 and sales of $56,900. Which of the following is true?a. Aqua Corporation has a total asset turnover of 1.37 times.b.
Tried Company began the year with $450,000 in total assets and ended the year with $530,000 in total assets. Sales for the year were $560,000 and net income for the year was $46,000. What was Tried Company’s return on assets for the year?a. 114%b. 9.4%c. 10.2%d. 8.2%
Anton Company owns 45 percent of Charlotte Corporation and exerts significant influence over it. This investment should be shown as:a. An equity method investmentb. An available-for-sale investmentc. A consolidationd. An investment in trading securities
Jackson Corporation purchased 150 shares of Riley Corporation for $46 per share. The investment is available for sale. On 12/31/X5, Riley’s stock is selling for $43 per share. Jackson’s net income for the year was $235,000.What was Jackson’s comprehensive income?a. $235,000b. $228,100c.
Which of the following is not a reason investments in trading securities are shown at their fair value on the balance sheet?a. Fair values of publicly traded securities are readily available.b. Fair value is considered relevant information to financial statement users.c. Fair value is an objective
On March 5, Maxwell Corporation purchased seventy shares of Tyrone Company for $30 per share, planning to hold the investment for a short time. On June 30, Maxwell prepares its quarterly financial statements. On that date, Tyrone is selling for $32 per share. What is the unrealized gain Maxwell
____ Net income and comprehensive income are the same thing.
____ Trading securities are defined as those that are held for a short time.
____ Equity method investments are reported at their fair value on the balance sheet.
____ When a company owns more than 50 percent of another, the financial statements of the two companies should be consolidated.
____ All investments in other companies should be reported at the cost of the investment.
____ Gains and losses on available-for-sale securities do not affect net income until the securities are sold.
____ The higher a company’s ROA, the more efficiently the company is using its assets.
____ If a company owns 35 percent of another, it should use the equity method to account for the investment, regardless of whether or not it has any influence.
____ If the owner of trading securities is paid a dividend, it should be recorded as revenue and shown on the income statement.
____ To keep things simpler for financial statement users, all investments are accounted for the same way.
How is return on assets determined?
How is total asset turnover calculated?
Define “consolidation.”
How much stock must one company own to be considered “in control” of another?
How are dividends paid by an investee reported by the owner under the equity method?
When and how is income from an equity investment recognized by the owner?
When trying to determine if the equity method of accounting should be used, what guidelines are available to help accountants?
Which method of accounting is used when one company owns enough stock in another to exert “significant influence”?
Define “comprehensive income.”
How does the accounting for unrealized gains and losses on available-for-sale securities differ from trading securities?
At what value are available-for-sale securities reported on the balance sheet?
What is an available-for-sale security?
What is an unrealized gain or loss?
Why does the accounting for trading securities differ from that of other assets like buildings or inventory?
At what value are trading securities reported on the balance sheet?
Where is dividend revenue reported?
When is the purchase of stock in one company by another classified as a“trading security”?
Give three reasons one company would purchase the stock of another.
Highlight Company purchases the right to use a certain piece of music from the musician. It hopes to make this its “signature song” so it will be a longterm relationship, the contract stating five years. The agreed upon price is$750,000, with no stated interest rate. Highlight could borrow
Calculate the present value of each of the following amounts at the given criteria. Assume that the payment is made at the beginning of the period(annuity due) Payment per Period Interest Rate Number of Periods Present Value $30,000 5% 8 years $60,000 4% 7 years $25,000 8% 10 years $56,000 6% 4
On 1/1/X6 Fred Corporation purchases a patent from Barney Company for$10,000,000, payable at the end of three years. The patent itself has an expected life of ten years. No interest rate is stated, but Fred could borrow that amount from a bank at 6 percent interest.a. Record the journal entry to
Calculate the present value of each of the following amounts at the given criteria and then answer the questions that follow:a. Does the present value increase or decrease when the interest rate increases?b. Does the present value increase or decrease as the time period increases? Future Cash Flow
Assume the same facts as in problem 3 above, but assume that Star pays$100,000,000 for Trek.a. When a purchasing company pays more than the fair market value of the assets of a company being acquired, what is this excess payment called?b. Why might Star be willing to pay more than $71,660,000 for
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