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fundamental accounting principles

Questions and Answers of Fundamental Accounting Principles

Zippydah SE has the following data at December 31, 2020.The non-trading securities are held as a long-term investment. This is the first year of the company’s operations.Instructionsa. Prepare the
At December 31, 2020, the end of its first year of operations, the trading securities for Geneva AG are as follows.Instructionsa. Prepare the adjusting entry at December 31, 2020, to report the
Presented below are two independent situations.1. Chicory Cosmetics acquired 15% of the 200,000 ordinary shares of Racine Fashion at a total cost of €13 per share on March 18, 2020. On June 30,
On January 1, Vince SpA purchased a 25% equity in Morelli SpA for £180,000. At December 31, Morelli declared and paid a £36,000 cash dividend and reported net income of £160,000.Instructionsa.
Spring Ltd. had the following transactions pertaining to investments in ordinary shares.Jan. 1 Purchased 2,500 ordinary shares of Angeltide Limited (5%) for €142,100.July
Brook Ltd. purchased 70 Meissner AG 9%, 10-year, €1,000 bonds on January 1, 2020, for €70,000. The bonds pay interest annually on January 1. On January 1, 2021, after receipt of interest, Brook
Floyd Limited had the following transactions pertaining to debt investments.Jan. 1, 2020 Purchased 50 £1,000 Petal Co. 8% bonds for £50,000 cash. Interest is payable
a. Some of Quinghai Lake Limited’s investment securities are classified as trading securities and some are classified as non-trading. The cost and fair value of each category at December 31, 2020,
The following are two independent situations:1. Lorfeld Ltd. acquired 10% of the 500,000 ordinary shares of Northbrook Enterprises at a total cost of €11 per share on June 17, 2020. On September 3,
Kurtyka Ltd. had the following transactions relating to debt investments:Jan. 1, 2020 Purchased 50, £1,000, 8% Nordica Company bonds for £50,000. Interest is
Amazonas SA holds as a long-term investment non-trading share securities costing R$72,000. At December 31, 2020, the fair value of the securities is R$66,000. Prepare the adjusting entry to record
Kayser SE owns 25% of Plano Company. For the current year, Plano reports net income of €190,000 and declares and pays a €40,000 cash dividend. Record Kayser’s equity in Plano’s net income and
The cost of the trading securities of Hardy Company at December 31, 2020, is £62,000. At December 31, 2020, the fair value of the securities is £59,000. Prepare the adjusting entry to record the
On August 1, Paul Holdings buys 1,000 ordinary shares of Merlynn for €35,700. On December 1, Paul sells the share investments for €40,000 in cash. Journalize the purchase and sale of the ordinary
Kimmel Industries AG purchased debt investments for CHF50,000 on January 1, 2020. On July 1, 2020, Kimmel received cash interest of CHF1,600. Journalize the purchase and the receipt of interest.
What is the year-end accounting treatment of the account Unrealized Gain or Loss—Equity?
Tina Eddings is the controller of Mendez SLU. At December 31, the company’s investments in trading securities cost €74,000. They have a fair value of €70,000. Indicate how Tina would report
Rijo SA uses the equity method to account for its ownership of 30% of the ordinary shares of Pippen Packing. During 2020, Pippen reported a net income of €80,000 and declares and pays cash
The financial statements of Apple are presented in Appendix D. The complete annual report, including the notes to its financial statements, is available at the company’s website.InstructionsUse
The financial statements of TSMC appear in Appendix A. The complete annual report, including the notes to the financial statements, are available at the company’s website.InstructionsRefer to
James Ltd.’s statement of financial position at December 31, 2019, is presented below.During 2020, the following transactions occurred.1. James paid £2,500 interest on the bonds on January 1,
Saberhagen Ltd. sold Rs3,500,000, 8%, 10-year bonds on January 1, 2020. The bonds were dated January 1, 2020, and pay interest annually on January 1. Saberhagen uses the straight-line method to
On January 1, 2020, Jade SA issued €2,000,000 face value, 7%, 10-year bonds at €2,147,202. This price resulted in a 6% eff ective-interest rate on the bonds. Jade uses the effective interest
On January 1, 2020, Lock Industries Ltd. issued £1,800,000 face value, 5%, 10-year bonds at £1,667,518. This price resulted in an effective-interest rate of 6% on the bonds. Lock uses the
Presented below are three different lease transactions that occurred for Ruggiero Inc. in 2020. Assume that all lease contracts start on January 1, 2020. In no case does Ruggiero receive title to the
Talkington Electronics issues a R$400,000, 8%, 10-year mortgage note on December 31, 2019. The proceeds from the note are to be used in financing a new research laboratory. The terms of the note
Huebner Hotels has assets of €1,800,000, liabilities of €1,100,000, and equity of €700,000 at December 31, 2020. Compute and discuss the debt to assets ratio at year-end.
Zhu Ltd. issues HK$5 million, 10-year, 9% bonds at 96, with interest payable annually on January 1. The straight-line method is used to amortize bond discount.a. Prepare the journal entry to record
Imholf Company leases a new building from Noble Construction for 20 years. The present value of the lease payment is €700,000. Prepare the journal entry to record this transaction.
Shaff er Ltd. is considering two alternatives to finance its construction of a new €2 million plant.a. Issuance of 200,000 ordinary shares at the market price of €10 per share.b. Issuance of €2
Presented below are non-current liability items for Suarez AG at December 31, 2020. Prepare the non-current liabilities section of the statement of financial position for Suarez.Bonds payable, due
Hanschu plc issues an £800,000, 10%, 10-year mortgage note on December 31, 2020, to obtain financing for a new building. The terms provide for annual installment payments of £130,196. Prepare the
The statement of financial position for Miley Consulting reports the following information on July 1, 2020.Non-current liabilities Bonds payable............................ £940,000Miley decides to
Meera Ltd. issued 4,000, 8%, 5-year, £1,000 bonds dated January 1, 2020, at 100. Interest is paid each January 1.a. Prepare the journal entry to record the sale of these bonds on January 1, 2020.b.
Fleming Ltd. issues £400,000 of 7%, 5-year bonds on January 1, 2020, at 105. Assuming that the straight-line method is used to amortize the premium, what is the total amount of interest expense for
Redbone AG issues CHF500,000 of 8%, 5-year bonds on January 1, 2020, at 104. If Redbone uses the effective-interest method in amortizing the premium, will the annual interest expense increase or
The financial statements of Apple are presented in Appendix D. The complete annual report, including the notes to its financial statements, is available at the company’s website.InstructionsUse
The equity accounts of Gonzalez SA at January 1, 2020, are as follows.Share Capital—Preference, no par, 4,000 shares issued .............................€400,000Share Capital—Ordinary, no par,
Nestlé’s financial statements are presented in Appendix B. Financial statements of Delfi Limited are presented in Appendix C. The complete annual reports of Nestlé and Delfi , including the
On January 1, 2020, Primo plc had the following equity accounts.Share Capital—Ordinary (£10 par value, 75,000 shares issued and outstanding) ..............................£750,000Share
On January 1, 2020, Belgium Industries had the following equity accounts.Share Capital—Ordinary (€4 par value, 250,000 shares issued and outstanding) ......€1,000,000Share Premium—Ordinary
The post-closing trial balance of Fortaleza SA at December 31, 2020, contains the following equity accounts.Share Capital—Preference (15,000 shares issued) ..............................R$
The equity accounts of Karp Outfitters at January 1, 2020, are as follows.Share Capital—Preference, 6%, £50 par .................£600,000Share Capital—Ordinary, £5 par
On January 1, 2020, Prasad SpA had the following equity accounts.Share Capital—Ordinary (€25 par value, 48,000 shares issued and outstanding) .......................€1,200,000Share
This financial information is available for Klinger Hardware.The weighted-average number of ordinary shares outstanding was 180,000 for 2019 and 150,000 for 2020.InstructionsCalculate earnings per
The following financial information is available for Plummer SA.The weighted-average number of ordinary shares outstanding was 80,000 for 2019 and 100,000 for 2020.InstructionsCalculate earnings per
Ringgold NV has outstanding at December 31, 2020, 50,000 shares of €20 par value, cumulative, 6% preference shares and 200,000 shares of €5 par value ordinary share. All shares were outstanding
The following expenditures (in thousands) relating to plant assets were made by Lee Jung Ltd. during the first 2 months of 2020.1. Paid W5,000 of accrued taxes at time plant site was acquired.2. Paid
a. On January 1, 2020, Rolling Hills Country Club purchased a new riding mower for £18,000. The mower is expected to have an 8-year life with a £2,000 residual value. What journal entry would
Yockey HVAC purchased a delivery truck. The total cash payment was £28,220 including the following items.Negotiated purchase price..................................£24,000Installation of special
Ratzlaff Company issues $2 million, 10-year, 8% bonds at 97, with interest payable on January 1.Instructionsa. Prepare the journal entry to record the sale of these bonds on January 1, 2020, using
On January 1, 2018, Fleming Ltd. issued £2,400,000 of 5-year, 8% bonds at 95; the bonds pay interest annually on January 1. By January 1, 2020, the market rate of interest for bonds of risk similar
Bond or debt securities pay a stated rate of interest. This rate of interest is dependent on the risk associated with the investment. Fitch Ratings provides ratings for companies that issue debt
Nestlé’s financial statements are presented in Appendix B. Financial statements of Delfi Limited are presented in Appendix C.Instructionsa. Based on the information contained in those financial
In 2020, Orasco SA had net sales of R$600,000 and cost of goods sold of R$360,000. Operating expenses were R$153,000, and interest expense was R$7,500. The corporation’s tax rate is 30%. The
The following accounts appear in the ledger of Tiger Ltd. after the books are closed at December 31 (¥ in thousands).Share Capital—Ordinary, no par, ¥1 stated value, 400,000 shares
Dirk SA reported the following balances at December 31, 2019: share capital—ordinary €500,000, share premium—ordinary €100,000, and retained earnings €250,000. During 2020, the following
Bindra A.Ş. reported retained earnings at December 31, 2019, of ₺310,000. Bindra had 200,000 shares outstanding at the beginning of 2020.The following transactions occurred during 2020.1. An error
On January 1, 2020, Eddy Industries had retained earnings of £650,000. During the year, Eddy had the following selected transactions.1. Declared cash dividends £120,000.2. Corrected overstatement
On October 31, the equity section of Lucerne AG consists of share capital—ordinary CHF500,000 and retained earnings CHF900,000. Lucerne is considering the following two courses of action: (1)
On January 1, 2020, Lanie Limited had £1,000,000 ordinary shares outstanding that were issued at par. It also had retained earnings of £750,000. The company issued 40,000 ordinary shares at par on
Knudsen Bakeries was organized on January 1, 2019. During its first year, the company issued 2,000 shares of HK$50 par value preference shares and 100,000 shares of HK$10 par value ordinary shares.
On January 1, Chevon Enterprises had 95,000 no-par ordinary shares issued and outstanding. The shares have a stated value of €5 per share. During the year, the following occurred.Apr. 1
On January 1, 2020, Vahsholtz Automotive purchased 5,000 treasury shares. Other information regarding Vahsholtz Automotive is provided as follows.Compute (a) Return on ordinary shareholders’
Foley Electronics has retained earnings of HK$3,100,000 on January 1, 2020.During the year, Foley earned HK$1,200,000 of net income (amounts in thousands). It declared and paid a HK$150,000 cash
Jurgens AG has had 4 years of net income. Due to this success, the market price of its 400,000 shares of £2 par value ordinary shares has increased from £12 per share to £49. During this period,
Herr Fashions has 2,000 shares of 7%, €100 par value preference shares outstanding at December 31, 2020. At December 31, 2020, the company declared a €110,000 cash dividend.Determine the
The following information is available for Reinsch Ltd. for the year ended December 31, 2020: cost of goods sold £205,000, sales revenue £350,000, other revenues and gains £50,000, and operating
The balance in retained earnings on January 1, 2020, for Palmer Cosmetic was €800,000. During the year, the company paid cash dividends of €90,000 and distributed a share dividend of €8,000. In
For the year ending December 31, 2020, Soto Ltd. reports net income ¥170,000 and dividends ¥85,000 (amounts in thousands). Prepare the retained earnings statement for the year assuming the balance
The equity section of Pretzer plc consists of ordinary shares (£10 par) £2,000,000 and retained earnings £500,000. A 15% share dividend (30,000 shares) is declared when the market price per share
Rafy Furcal believes that both the beginning and ending balances in retained earnings are shown in the equity section. Is Rafy correct? Discuss.
The financial statements of Apple Inc. are presented in Appendix D. The complete annual report, including the notes to its financial statements, is available at the company’s
Overton Co. had the following transactions during the current period.Mar. 2 Issued 5,000 shares of $1 par value common stock to attorneys in payment of a bill for $30,000 for services performed in
Meenen Corporation has the following accounts at December 31: Common Stock, $10 par, 5,000 shares issued, $50,000; Paid-in Capital in Excess of Par, $10,000; Retained Earnings, $45,000; and Treasury
The shareholders’ meeting for Kissinger SE has been in progress for some time. The chief financial officer for Kissinger is presently reviewing the company’s financial statements and is
Nestlé’s financial statements are presented in Appendix B. Financial statements of Delfi Limited are presented in Appendix C. The complete annual reports of Nestlé and Delfi , including the
The equity section for TSMC is shown in Appendix A. The complete annual report, including the notes to the financial statements (use Note 24), is available at the company’s website.Instructionsa.
Voltaire Enterprises’ statement of financial position at December 31, 2019, is presented below.During 2020, the following transactions occurred.1. On January 1, 2020, Voltaire issued 1,500 €20
The following equity accounts are in the ledger of Crivello SpA at December 31, 2020.Share Capital—Ordinary (€3 stated value)
The following equity accounts are in the ledger of Westin SE at December 31, 2020.Share Capital—Ordinary (€10 stated value)
Jude Limited has been authorized to issue 20,000 £100 par value, 10%, non-cumulative preference shares and 1,000,000 no-par ordinary shares. The company assigned a £2.50 stated value to the
The following equity accounts are in the ledger of Galindo Company at December 31, 2020.Share Capital—Ordinary (€5 stated value) .........................€2,000,000Share Premium—Treasury
Peck Company is authorized to issue 20,000 shares of €50 par value, 10% preference shares and 125,000 shares of €5 par value ordinary shares. On January 1, 2020, the ledger contained the
The equity accounts of Terrell SE on January 1, 2020, were as follows.Share Capital—Preference (9%, €50 par, cumulative,10,000 shares authorized)
Elston Limited had the following equity accounts on January 1, 2020: Share Capital— Ordinary (£5 par) £400,000, Share Premium—Ordinary £200,000, and Retained Earnings £100,000. In 2020, the
Gão Limited was organized on January 1, 2020. It is authorized to issue 10,000 8%, HK$1,000 par value preference shares, and 500,000 no-par ordinary shares with a stated value of HK$20 per share.
The following equity accounts are in the ledger of Eudaley Group at December 31, 2020.Share Capital—Ordinary (€5 stated value) ......................€1,500,000Share Premium—Preference
On January 1, 2020, the equity section of Bergin ASA shows share capital— ordinary (£54 par value) £1,500,000; share premium—ordinary £1,000,000; and retained earnings £1,200,000. During the
As an auditor for the firm of Gratis and Goode, you encounter the following situations in auditing different clients.1. JR SpA is a closely held corporation whose shares are not publicly traded. On
Sorocaba Co. had the following transactions during the current period.Mar. 2 Issued 5,000 R$1 par value ordinary shares to attorneys in payment of a bill for R$44,000 for services
Nanjing Ltd. purchased from its shareholders 5,000 shares of its own previously issued shares for ¥250,000. It later resold 1,300 shares for ¥54 per share, then 2,000 more shares for ¥49 per
Garcia Enterprises has the following accounts at December 31: Share Capital— Ordinary, €10 par, 5,000 shares issued, €50,000; Share Premium—Ordinary €32,000; Retained Earnings €45,000;
On July 1, Pearl River Industries purchases 500 of its HK$20 par value ordinary shares for the treasury at a cash price of HK$80 per share. On September 1, it sells 350 treasury shares for cash at
What are the principal differences between ordinary shares and preference shares?
For what reasons might a company like Wesfarmers (AUS) repurchase some of its shares (treasury shares)?
a. What are the two principal components of equity?b. What is share capital? Give three examples.
Yang and Sammi operate a beauty salon as partners who share profits and losses equally. The success of their business has exceeded their expectations; the salon is operating quite profitably. Sammi
You are an expert in the field of forming partnerships. Ronald Hrabik and Meg Percival want to establish a partnership to start “Cake Shop,” and they are going to meet with you to discuss their
Raj Khan and Anisha Rai, two professionals in the finance area, have worked for Chopra Leasing for a number of years. Chopra Leasing is a company that leases high-tech medical equipment to hospitals.

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