Accounting Principles A Business Perspective Financial Accounting Chapters 9 To 18 1st Edition Bill Buxton, Amy Sibiga - Solutions

• Finance entirely by issuing additional shares of common stock at an expected issue price of USD 75 per share.
Business decision case A A company is trying to decide whether to invest USD 2 million on plant expansion and USD 1 million to finance a related increase in inventories and accounts receivable. The USD 3 million expansion is expected to increase business volume substantially. Profit forecasts
Alternate problem F Western Solar Energy Company issued USD 400,000 of 12 percent bonds on 2009 July 1, at face value. The bonds are dated 2009 July 1, call for semiannual payments on July 1 and January 1, and mature at the rate of USD 40,000 per year on July 1, beginning in 2010. The company's
Alternate problem E Goodhew Software Systems, Inc., issued USD 100,000 face value of 10 percent, 20-year bonds on 2009 July 1. The bonds are dated 2009 July 1, call for semiannual interest payments on July 1 and January 1, and are issued to yield 12 percent (6 percent per period).a. Compute the
Alternate problem D Creative Web Page issued USD 600,000 face value of 15 percent, 20-year bonds on 2010 October 1. The bonds are dated 2010 October 1, call for semiannual interest payments on April 1 and October 1, and are issued to yield 16 percent (8 percent per period).a. Compute the amount
Alternate problem C On 2009 July 1, Tick-Tock Clock Company issued USD 100,000 face value of 8 percent, 10-year bonds. These bonds call for semiannual interest payments and mature on 2019 July 1. The company received cash of USD 87,538, a price that yields 10 percent.Assume that the company's
Alternate problem B Safe Toy Company is seeking to issue USD 800,000 face value of 10 percent, 20-year bonds. The bonds are dated 2009 June 30, call for semiannual interest payments, and mature on 2029 June 30.a. Compute the price investors should offer if they seek a yield of 8 percent on these
Alternate problem A On 2009 December 1, New Jersey Waste Management Company issued USD 300,000 of 10-year, 9 percent bonds dated 2009 July 1, at 100.Interest on the bonds is payable semiannually on July 1 and January 1. All of the bonds are registered. The company's accounting period ends on March
Problem F Houston Clothing Company issued USD 600,000 of 12 percent serial bonds on 2009 July 1, at face value. The bonds are dated 2009 July 1; call for semiannual interest payments on July 1 and January 1; and mature at the rate of USD 120,000 per year, with the first maturity date falling on
Problem E Kelly Furniture Company issued USD 400,000 face value of 18 percent, 20-year junk bonds on 2009 October 1. The bonds are dated 2009 October 1, call for semiannual interest payments on April 1 and October 1, and are issued to yield 16 percent (8 percent per period).a. Compute the amount
Problem D Storall Company issued USD 200,000 face value of 16 percent, 20-year junk bonds on 2010 July 1. The bonds are dated 2010 July 1, call for semiannual interest payments on July 1 and January 1, and were issued to yield 12 percent (6 percent per period).a. Compute the amount received for the
Problem C On 2009 July 1, South Carolina Table Company issued USD 600,000 face value of 10 percent, 10-year bonds. The bonds call for semiannual interest payments and mature on 2019 July 1. The company received cash of USD 531,180, a price that yields 12 percent.Assume that the company's fiscal
Problem B Ecological Water Filtration, Inc., is going to issue USD 400,000 face value of 10 percent, 15-year bonds. The bonds are dated 2009 June 30, call for semiannual interest payments, and mature on 2024 June 30.a. Compute the price investors should offer if they seek a yield of 8 percent on
Problem A On 2009 June 1, Economy Auto Parts, Inc., issued USD 180,000 of 10-year, 16 percent bonds dated 2009 April 1, at 100. Interest on bonds is payable semiannually on presentation of the appropriate coupon. All of the bonds are of USD 1,000 denomination. The company's accounting period ends
Exercise M After Joe Mordino won USD 4,000,000 in the Georgia lottery, he decided to purchase USD 10,000 of lottery tickets at the end of each year for the next 20 years. He was hoping to hit the lottery again, but he never did. If the state can earn 12 percent on ticket revenue received, how much
Exercise L Joe Mordino bought a ticket in the Georgia lottery for USD 1, hoping to strike it rich. To his amazement, he won USD 4,000,000. Payment was to be received in equal amounts at the end of each of the next 20 years. Mordino heard from relatives and friends he had not heard from in years.
Exercise K What is the present value of a series of semiannual payments of USD 10,000 due at the end of each six months for the next five years if the market rate of interest is 10 percent per year and the present value of an annuity of USD 1 for 10 periods at 5 percent is 7.72173?
Exercise J What is the present value of a lump-sum payment of USD 20,000 due in five years if the market rate of interest is 10 percent per year (compounded annually) and the present value of USD 1 due in five periods at 10 percent is 0.62092?
Exercise I A recent annual report of Wal-Mart Corporation showed the following amounts as of the dates indicated:Year Ended January 31 2001 2000 1999 Earnings before interest (and taxes)(millions)$11,583 $10,162 $8,008 Interest expense (millions) 1,467 1,079 838 Calculate the times interest earned
Exercise H After interest was paid on 2010 September 30, USD 60,000 face value of Miami Video Rentals, Inc., outstanding bonds were converted into 8,000 shares of the company's USD 5 par value common stock. Prepare the journal entry to record the conversion, assuming the bonds were issued at 100.
Exercise G Cleveland Heating Systems, Inc., is required to make a deposit of USD 18,000 plus semiannual interest expense of USD 540 on 2009 October 31, to the trustee of its sinking fund so that the trustee can redeem USD 18,000 of the company's bonds on that date. The bonds were issued at 100.
Exercise F On 2009 August 31, as part of the provisions of its bond indenture, Caribbean Cruise Line, Inc., acquired USD 480,000 of its outstanding bonds on the open market at 96 plus accrued interest. These bonds were originally issued at face value and carry a 12 percent interest rate, payable
Exercise E On 2010 June 30 (a semiannual interest payment date), Holiday Rollerblade Company redeemed all of its USD 400,000 face value of 10 percent bonds outstanding by calling them at 106. The bonds were originally issued on 2006 June 30, at 100. Prepare the journal entry to record the payment
Exercise D After recording the payment of the interest coupon due on 2010 June 30, the accounts of Myrtle Beach Sailboat, Inc., showed Bonds Payable of USD 300,000 and Premium on Bonds Payable of USD 10,572. Interest is payable semiannually on June 30 and December 31. The five-year, 12 percent
Exercise C Compute the annual interest expense on the bonds in the previous exercise, assuming the bond discount is amortized using the straight-line method.
Exercise B On 2009 December 31, East Lansing Office Equipment Company issued USD 1,600,000 face value of 8 percent, 10-year bonds for cash of USD 1,400,605, a price to yield 10 percent. The bonds pay interest semiannually and mature on 2019 December 31.a. State which is higher, the market rate of
Exercise A On 2010 September 30, Domingo's Construction Company issued USD 120,000 face value of 12 percent, 10-year bonds dated 2010 August 31, at 100, plus accrued interest. Interest is paid semiannually on February 28 and August 31.Domingo's accounting year ends on December 31. Prepare journal
➢ Of what use is the times interest earned ratio?
➢ Why would an investor whose intent is to hold bonds to maturity pay more for the bonds than their face value?
➢ Why is the effective interest rate method of computing periodic interest expense considered theoretically preferable to the straight-line method?
➢ Convertible bonds payable due in 2012.
➢ First National Bank—Interest account.
➢ Discount on bonds payable.
➢ First-mortgage bonds payable, due 2010 July 1.
➢ Premium on bonds payable.
➢ Debenture bonds payable due in 2019.
➢ Accrued interest on bonds payable.
➢ Cash balance in a sinking fund.
➢ Indicate how each of the following items should be classified in a balance sheet on 2009 December 31.
➢ Why might it be more accurate to describe a sinking fund as a bond redemption fund?
➢ When bonds are issued between interest dates, why should the issuing corporation receive cash equal to the amount of accrued interest(accrued since the preceding interest date) in addition to the issue price of the bonds?
➢ What is meant by the term trading on the equity?
➢ Explain what is meant by the terms coupon, callable, convertible, and debenture.
➢ What is a bond indenture? What parties are usually associated with it?Explain why.
➢ What are the advantages of obtaining long-term funds by the issuance of bonds rather than additional shares of capital stock? What are the disadvantages?
Assume a company has net income of USD 100,000, income tax expense of USD 40,000, and interest expense of USD 20,000. The times interest earned ratio is:a. 5 times.b. 7 times.c. 8 times.d. 9 times.
If the straight-line amortization method had been used in the previous question, the interest expense for the first six months would have been:a. USD 39,170.b. USD 32,000.c. USD 18,000.d. USD 19,585.
On 2010 January 1, the Alvarez Company issued USD 400,000 face value of 8 percent, 10-year bonds for cash of USD 328,298, a price to yield 11 percent. The bonds pay interest semiannually and mature on 2020 January 1. Using the effective interest rate method, the bond interest expense for the first
If the bonds in the first question had been issued at 104, the entry to record the issuance would have been:a. Cash 104,000 Bonds payable 100,000 Premium on bonds payable 4,000 b.Cash 102,000 Bonds payable 100,000 Bonds interest payable 2,000 c.Cash 106,000 Bonds payable 100,000 Premium on bonds
Harner Company issued USD 100,000 of 12 percent bonds on 2010 March 1. The bonds are dated 2010 January 1, and were issued at 96 plus accrued interest. The entry to record the issuance would be:a.Cash 98,000 Discount on bonds payable 4,000 Bonds payable 100,00 0 Bonds interest payable 2,000 b.Cash
The straight-line method of amortization is the recommended method.true or false.
If the market rate of interest exceeds the contract rate, the bonds are issued at a discount.true or false.
Favorable financial leverage results when borrowed funds are used to increase earnings per share of common stock.true or false.
Callable bonds may be called at the option of the holder of the bonds.true or false.
An unsecured bond is called a debenture bond.true or false.
Group project F In a small group of students, locate the annual reports of three companies with investments in other companies. Compare the accounting and reporting for the investments by the three companies. For instance, by reading the notes to the financial statements, try to determine whether
Group project E With one or two other students, go to the library and locate Statement of Financial Standards No. 94, "Consolidation of All Majority-Owned Subsidiaries", published by the Financial Accounting Standard Board. In a report to your instructor answer questions such as: What does the
Group project D In teams of two or three students, select three companies you believe may be profitable short-term investments. Determine the current market prices for those companies' stocks from today's newspaper and the market prices six months ago. Calculate the gain or loss that your team
Business decision case C International Flavors & Fragrances, Inc., is the leading creator and manufacturer of flavors and fragrances used by others to impart or improve flavor or fragrance in a wide variety of consumer products.Use the following excerpt from International Flavors & Fragrances
Business decision case B On 2010 January 2, Brown Company acquired 60 percent of the voting common stock of Cobb Company for USD 720,000 cash. The excess of cost over book value was due to above-average earnings prospects. Brown has hired you to help it prepare consolidated financial statements and
Business decision case A You are the CPA engaged to audit the records of Quigley Company. You find that your client has a portfolio of marketable equity securities that has a total market value of USD 300,000 less than the total cost of the portfolio. You ask the vice president for finance if the
Alternate problem G Using the work sheet from the previous problem, prepare the following items:a. Consolidated income statement for the year ended 2010 December 31.b. Consolidated statement of retained earnings for the year ended 2010 December 31.c. Consolidated balance sheet for 2010 December 31.
Alternate problem F Refer back to the previous problem. Maple Company uses the equity method. Assume the following amounts are taken from the adjusted trial balances of Maple Company and Dodd Company on 2010 December 31:Maple Company Dodd Company Debit balance accounts Cash $ 864,000 $ 364,295
Alternate problem E Maple Company acquired all of the outstanding voting common stock of Dodd Company on 2010 January 2, for USD 4,320,000. On the date of acquisition, the balance sheets for the two companies were as follows:Maple Company Dodd Company Assets Cash $ 900,000 $270,000 Accounts
Alternate problem D Codd Company acquired 70 percent of the outstanding voting common stock of Snow Company for USD 8,568,000 on 2010 January 1. The investment is accounted for under the equity method. During the years 2010-2012, Snow Company reported the following:Net IncomeDividends(loss) Paid
Alternate problem C Prime Company acquired 90 percent of the outstanding voting common stock of Orr Company 2010 January 1, for USD 7,560,000 cash.Prime Company uses the equity method. During 2010 Orr reported USD 1,512,000 of net income and paid USD 504,000 in cash dividends. The stockholders'
Alternate problem B Kress, Inc., purchased on 2010 July 2, 240 shares of Baker Company USD 180 par value common stock as a temporary investment at USD 288 per share, plus a broker's commission of USD 432.On 2010 July 15, a cash dividend of USD 7.20 per share was received. On 2010 September 1, Baker
Alternate problems A On 2010 September 1, Ramsey Company purchased the following relatively long-term investments classified as available-for-sale securities:• Two thousand shares of Lacey Company capital stock at USD 439.20 plus broker's commission of USD 5,760.• One thousand shares of Membrow
Problem G Using the work sheet from Problem F, prepare the following items:a. Consolidated income statement for the year ended 2010 December 31.b. Consolidated statement of retained earnings for the year ended 2010 December 31.c. Consolidated balance sheet for 2010 December 31.
Problem F Refer to the previous problem, Cord Company uses the equity method. Assume the following are from the adjusted trial balances of Cord Company and Thorpe Company on 2010 December 31:Cord Company Thorpe Company Debit balance accounts Cash $ 351,000 $ 315,000 Accounts receivable, net 378,000
Problem E Cord Company acquired 100 percent of the outstanding voting common stock of Thorpe Company on 2010 January 2, for USD 2,700,000. At the end of business on the date of acquisition, the balance sheets for the two companies were as follows:Cord Company Thorpe Company Assets Cash $ 315,000 $
Problem D Pearson Company acquired 75 percent of the outstanding voting common stock of Frost Company for USD 1,444,800 cash on 2010 January 1. The investment is accounted for under the equity method. During 2010, 2011, and 2012, Frost Company reported the following:Net income(loss)Dividends Paid
Problem C On 2010 January 1, Long Company acquired 80 percent of the outstanding voting common stock of Fall Company for USD 4,032,000 cash. Long Company uses the equity method. During 2010, Fall reported USD 672,000 of net income and paid USD 288,000 in dividends. The stockholders' equity section
Problem B On 2010 October 17, Strong Company purchased the following common stocks (all trading securities) at the indicated per share prices that included commissions:600 shares of X Company common stock @ $216 $129,600 1,000 shares of Y Company common stock @ $144 144,000 1,600 shares of Z
Problem A Paris Company acquired on 2010 July 15, 400 shares of Rome Company USD 720 par value capital stock at USD 698.40 per share plus a broker's commission of USD 1,728. On 2010 August 1, Paris Company received a cash dividend of USD 8.64 per share. On 2010 November 3, it sold 200 of these
Exercise J Company S purchased 90 percent of Company T's outstanding voting common stock on 2010 January 2. The investment is accounted for under the equity method. Company S paid USD 2,790,000 for its proportionate equity of USD 2,430,000. The difference was due to undervalued land owned by
Exercise I The 2010 January 1, stockholders' equity section of Saye Company's balance sheet follows:Stockholders' equity:Paid-in capital:Common stock, $144 par; authorized, 200,000 shares; issued, and outstanding, 150,000 shares$21,600,00 0Paid-in capital in excess of par value 3,600,000 Total
Exercise H On 2009 January 1, Company J acquired 85 percent of the outstanding voting common stock of Company K. On that date, Company K's stockholders' equity consisted of:Stockholders' equity:Paid-in capital:Common stock, $90 par; 30,000 shares authorized, issued, and outstanding$2,700,000
Exercise G Heidi Corporation acquired, for cash, 80 percent of the outstanding voting common stock of Sumpter Company. After the close of business on the date of acquisition, Sumpter Company's stockholders' equity consisted of common stock, USD 5,880,000, and retained earnings, USD 2,184,000. The
Exercise F Given the facts in the previous exercise, how much would be recorded as goodwill in each of the following instances? The same amount was paid, but the parent company acquired a—a. 90 percent interest.b. 70 percent interest.c. 55 percent interest.
Exercise E On 2010 February 1, Larkin Company acquired 100 percent of the outstanding voting common stock of TRD Company for USD 8,400,000 cash. The stockholders' equity of the TRD Company consisted of common stock, USD 6,720,000, and retained earnings, USD 1,680,000. Prepare (a) the entry to
Exercise D Ruiz Company owns 75 percent of Sim Company's outstanding common stock and uses the equity method of accounting. Sim Company reported net income of USD 702,000 for 2010. On 2010 December 31, Sim Company paid a cash dividend of USD 189,000. In 2011, Sim Company incurred a net loss of USD
Exericse C Corbit Company has marketable equity securities that have a fair market value at year-end that is USD 13,440 below their cost. Give the required entry if:a. The securities are current assets classified as trading securities.b. The securities are noncurrent assets classified as
Exercise B Key Company purchased 200 shares of Franklin Company stock at a total cost of USD 7,560 on 2010 July 1. At the end of the accounting year (2010 December 31), the market value for these shares was USD 6,840. By 2011 December 31, the market value had risen to USD 7,920. This stock is the
Exercise A On 2010 July 1, Tam Company purchased 200 shares of Del Company capital stock as a temporary investment (trading securities) at USD 676.80 per share plus a commission of USD 720. On July 15, a 10 percent stock dividend was received. Tam received a cash dividend of USD 3.60 per share on
➢ Why are consolidated financial statements of limited usefulness to the creditors and minority stockholders of a subsidiary?
➢ How do a subsidiary's earnings, losses, and dividends affect the investment account of the parent when the equity method of accounting is used?
➢ The item Minority interest often appears as one amount in the consolidated balance sheet. What does this item represent?
➢ Why might a corporation pay an amount in excess of the book value for a subsidiary's stock? Why might it pay an amount less than the book value of the subsidiary's stock?
➢ Why is it necessary to make elimination entries on the consolidated statement work sheet? Are these elimination entries also posted to the accounts of the parent and subsidiary? Why or why not?
➢ Under what circumstances must consolidated financial statements be prepared?
➢ What is the purpose of preparing consolidated financial statements?
➢ Of what significance is par value to the investing corporation?
➢ Explain briefly the accounting for stock dividends and stock splits from the investor's point of view.
➢ Under what circumstances is the equity method used to account for stock investments?
➢ Describe the valuation bases used for marketable equity securities.
➢ Explain how marketable securities should be classified in the balance sheet.
➢ For what reasons do corporations purchase the stock of other corporations?
The excess of cost over the book value of an investment that is due to expected above-average earnings is labeled on the consolidated balance sheet as:a. Goodwill.b. Common stock.c. Retained earnings.d. Loss on investment.
Under the equity method, the investment account always reflects only the:a. Dividends paid by the investee corporation.b. Investor's interest in the net assets of the investee.c. Investor's share of net income.d. Historical cost of the investment.

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Accounting Principles A Business Perspective Financial Accounting Chapters 9 To 18 1st Edition Bill Buxton, Amy Sibiga - Solutions

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