Questions and Answers of Introduction To Accounting

Springer Inc., plans to acquire a trenching machine on June 1, 2019, with a list price of $62,000, by paying $12,000 down and signing a four-year, $50,000 noninterest-bearing note. The market rate of
XYZ Corporation plans to acquire a building (with a useful life of 10 years) by issuing a $5,000,000, 10-year, 3 percent note to the former owner of the building. XYZ will value the building and the
Messier Company is planning to finance several projects and wants you to determine the cash inflows and outflows of the following bonds. The market interest rate for Messier Company is 8 percent.1.
Borthick Basketball Company is going to expand its manufacturing operations and plans to borrow some of the funds necessary for the expansion. Borthick wants to issue a 10-year, 9 percent, $600,000
Larkins is planning to issue debentures with a face value of $1,000,000 on September 1, 2020. The debenture matures in 10 years and have a face interest rate of 8 percent that is paid semiannually on
Describe the interest expense reflected on the budgeted income statement over the life of a lumpsum payment (noninterest-bearing) note.
Jing Leasing service recently purchased drilling equipment for $200,000 and wants to lease it to Huss Excavation Company. If Huss accepts, it will sign a lease agreement on May 1, 2019. The equipment
Describe the interest expense reflected on the budgeted income statement over the life of a periodic payment (installment) note.
Double J Construction Company plans to buy a used dump truck that has a price of $78,000. Double J is going to put $10,000 down and the dealer has offered to finance the remaining $68,000 with an
Li Delivery Corporation is planning to issue $10,000,000, 10-year, 7 percent bonds. The bonds are dated May 1, 2019, with interest paid annually on May 1. If the bonds are sold on May 1, 2019, to
BRHC Corporation has issued bonds with a $12,000,000 face value that has a carrying value of $11,232,125 on September 1, 2019. For each of the following assumptions, describe the cash flow that will
Describe the carrying value shown on the budgeted balance sheet over the life of a periodic payment (installment) note.
Using the information in E14.7, how much cash will Li Delivery Corporation receive if the bonds have a market interest rate of 8 percent? How much interest expense will Li Delivery incur during the
Hunsacker Corporation’s capital expenditure budget calls for the construction of a new addition to the plant and the corporation’s controller plans to borrow $8,000,000 to finance a portion of
Describe the carrying value shown on the budgeted balance sheet over the life of a lump-sum payment (noninterest-bearing) note.
Why does a discount on a note arise?
What distinguishes a bond from other types of debt instruments?
On October 1, 2019, Wenke Corp signs a lease to use a piece of equipment for seven years. The lease requires Wenke to make seven payments of $27,865 the first of which is on October 1, 2019, the date
Why does a premium on a note arise?
Annabel Corporation’s bonds have a face value of $11,000,000 and a call price of 103. On February 1, 2019, the bonds have a carrying value of $11,200,000 on Annabel’s books and a market price of
The Harter Corporation has issued bonds with a face value of $4,000,000 that are convertible on a 50:1 basis (50 shares of common stock for one bond) and have a call price of 104. Describe the cash
Refer to E17.3. How does your answer change if the toy division showed a loss from operations of $800,000 and if Hora experiences a gain on disposal of the toy division of $500,000? Show your
Describe how a corporation raises money by issuing bonds.
Glatt Enterprises needs to borrow $100,000. It plans to sign a noninterest-bearing note payable for eight years when the market rate of interest is 6 percent compounded quarterly. How much money will
Clifton, Inc., needs to borrow some money. It prepares an eight-year periodic and lump-sum payment note with a face value of $100,000 and a face rate of interest of 7 percent paid semiannually. If
When planning to issue a bond, why would a company use a conversion feature?
When planning to issue a bond, why would a company use a call feature?
What is the distinction between a bearer bond and a registered bond?
What factors should be considered when choosing a debt instrument?
What does the Paid-in Capital from Treasury Stock account represent? How is it reported on a firm’s financial statements?
On April 1, 2019, Arnwine Supply issued $50,000,000 in 15-year, 10 percent bonds that pay interest annually on April 1. The bonds were issued on April 1, 2019, when the market interest rate was 11
On June 20, 2019, the board of directors of Henk Company declared a $164,000 dividend for its common shareholders. The date of payment for the dividend is July 15, 2019, to shareholders of record on
Burrell Industries’ board of directors authorized the issuance of $60,000,000 in 10-year, 9 percent bonds. The bonds are dated November 1, 2019, and interest is paid semiannually on May 1 and
On July 1, 2019, Badertscher Corporation purchased 2,000 shares of its $0.10 par common stock for $15 per share. Make the entries for the following treasury stock transactions:A. Make the entry to
On August 15, 2019, the accounts and information that would appear in its shareholders’ equity section of Gilman Company’s balance sheet are listed below:1. On August 15, 2019, the board of
What does a deficit balance in Retained Earnings indicate?
Noble Corporation has a 7 percent market interest rate and a December 31 fiscal yearend. During 2019 the following notes were issued to acquire equipment:June 1 Issued a $140,000, two-year, 6 percent
The Glassburn Corporation made the following transactions in 2019 when its market rate of interest was 6 percent. Glassburn has a December 31 fiscal year-end.March 1 Purchased $42,000 of office
What distinguishes par value from no-par stock in the shareholders’ equity section of the balance sheet?
In 2002, Sherron Watkins along with Cynthia Cooper and Coleen Rowley were named Time magazine’s Persons of the Year 2002. Each of these women faced personal risks to reveal the wrongdoings at
The promotions manager of Waterbed World is interested in running a “36 months, no interest sale.” He wants to offer customers the opportunity to buy waterbeds and to finance the purchase by
In 2002, Cynthia Cooper, Sherron Watkins, and Coleen Rowley were named Time magazine’s Persons of the Year 2002. Each of these women faced personal risks to reveal the wrongdoings at WorldCom,
The Shepersky Corporation was authorized to issue 2,000,000 shares of $0.01 par value common stock and 200,000 shares of $50 par value, 10 percent preferred stock. To date, Shepersky has issued
Johnson Corporation decided to pay a dividend of $2.00 per share. The corporation has 2,500,000 shares authorized, 800,000 shares issued, and 750,000 shares outstanding on the date of declaration.
The following partial payment schedule is for a $75,000 note the Steiner Corporation issued for cash on October 31, 2019. If Steiner has a December 31 fiscal year-end, make the entries for the
Sprague, Inc., has 10,000,000 shares of $2 par value common stock authorized and 1,500,000 shares issued and outstanding. The stock had a fair market value of $20 per share on November 15, 2019, when
Huss has signed a lease agreement with Jing Leasing Co. on January 1, 2019. The equipment being signed has an estimated life of five years, and the lease term is for 5 years. During the period of the
When is an installment note classified as both a current liability and a long-term liability?
Refer to Dell Computer (www.dell.com, or SEC.gov) and answer the following questions:A. Does it have preferred stock? If so, how many shares are authorized, issued, and outstanding, and what is the
Refer to Walt Disney Company (www.disney.com or SEC.gov) and answer the following questions:A. Does it have preferred stock? If so, how many shares are authorized, issued, and outstanding, and what
On September 1, 2019, Purinton Telescopes borrowed $100,000 cash at 6 percent on an eight-year installment note. Monthly payments start on October 1, 2019. Prepare an installment loan repayment
Gland Corporation issued for cash a $400,000, 7 percent, three-year bond on September 1, 2019, that pays interest annually. Gland Corporation has a December 31 fiscal year-end. Make the entries for
Baugh Travel, whose year-end is December 31, purchased $55,500 worth of office furniture on January 7, 2019, and has an estimated useful life of five years and a salvage value of $500. Calculate the
Glenda Eichman is responsible for the Available-for- Sale Securities of the Walk-On Shoe Company. At December 31, 2019, the cost of the Available-for-Sale Securities was $900,000 and the market value
Using the information in E15.13, show how the installment note is reported on Steiner Corporation’s income statement, balance sheet, and statement of cash flows for the year ended December 31, 2019
On November 1, 2019, Phillips Corporation raised $2,382,041.19 by issuing a five-year, $3,500,000 noninterest-bearing note. The amortization table for the note follows. Make the entries for the note
Using the information in E15.15, show how Phillips Corporation’s income statement and balance sheet report the impact of this note for the years ended December 31, 2019, and December 31, 2020.Data
On June 1, 2019, Jorgensen Corporation purchased a piece of equipment with a list price of $200,000 and signed a five-year noninterest-bearing note. The market rate at the time the note was signed
What constitutes the carrying value of a noninterest-bearing note?
What constitutes the carrying value of a bond?
The Brinkerhoff Company signed a $400,000, 6 percent, four-year bond dated May 1, 2019, when the market rate of interest was 6 percent. Interest on the bond is payable semiannually on November 1 and
What is the difference between the accounting for capital and operating leases?
Scott Corporation issued a $100,000, eight-year, 7 percent note for cash on June 1, 2019. The note pays interest semiannually and the market rate of interest was 6 percent when the note was issued.
Using the information from E15.21 and assuming the market rate of interest was 8 percent, make the entries for the first year of the bond’s life and show how Scott would report its bond activities
On January 1, 2019, Wenke Corp signs a lease to use a piece of equipment for seven years. The lease requires Wenke to make seven payments of $27,865, the first of which is on January 1, 2019, the
Use the same facts as E15.23, but assume the lease is considered an operating lease. What entry will Wenke make when the lease is signed? What entry(s) are made on December 31, 2019? What is reported
What incentives might management have to classify investments as trading securities versus available-for-sale securities? What are the ethical implications of classifying securities according to
What factors do companies consider in determining the cost of plant assets?
Refer to the financial statement of a publicly traded company of your choice (See EDGAR at SEC.gov) and answer the following questions:A. Which depreciation method is used?B. Does the company have
Jackson Barton is the CFO of Games Inc. a software company that designs video games. His company uses investments to manage their cash and he has presented you with the following financial
As you know, extraordinary repairs and betterments are recorded as capital expenditures while maintenance and normal repairs are recorded as expenses in the period incurred. What incentives might
Should the cost of paving a parking lot be treated as a capital or revenue expenditure? Why?
Whispering Recording Company (WRC) acquired the following assets at the beginning of 2019:1. The patent to manufacture a revolutionary compact disc. The purchase price was $2,300,000, and there are
Winters Company purchased a new van to expand its business. The invoice price of the van was $35,400, with additional costs of $950 for dealer prep and $675 in destination charges. Winters also had
Alexander, Inc., whose year-end is December 31, purchased a delivery truck on May 2, 2019. The invoice price was $63,500 and included dealer prep and destination charges of $4,850. Alexander also
Prager, Inc., acquired a mine for $870,000 at the beginning of the year. Of the total purchase price, $100,000 was allocated to the land while the remainder was allocated to the minerals in the mine
What is depreciation?
What is the carrying value of an asset?
Bundy Company purchased several computerized cash registers on April 2, 2019, at a total cost of $36,600. Estimated useful life of the registers is four years, and their total expected salvage value
Refer to Walt Disney Company (www.disney.com) and answer the following questions:A. Which depreciation method is used?B. Does the company have intangible assets? If so, how are they amortized?C. What
Refer to Dell Computers (www.dell.com) and answer the following questions:A. Which depreciation method is used?B. Does the company have intangible assets? If so, how are they amortized?C. What is the
McKain, Inc., closes its books on October 31 and prepares depreciation adjustments annually. On July 27, 2019, McKain sold some equipment with an original cost of $36,250 for $18,500. The equipment
Under what circumstances are gains and losses not recognized in a noncash exchange?
When gains and losses are not recognized in a noncash exchange, how is the cost of the new asset determined?
When is a loss on impairment recognized?
Kaltenheuser Corporation purchased a patent with a 17-year legal life and an 8-year useful life. The patent cost $40,000. What is the amortization expense each year if Kaltenheuser uses the
Teruya Corporation provided the following relevant information for its fiscal year ending September 30, 2019:On October 1, 2018, Teruya’s retained earnings balance was $238,790. On March 1, 2019,
What is a natural resource? What is depletion?
Refer to E16.15. How would the patent appear on Kaltenheuser’s balance sheet after the third year?Data FROM E16.15Kaltenheuser Corporation purchased a patent with a 17-year legal life and an 8-year
What is an intangible asset? What is amortization?
The Riedl Corporation has the following information available on December 31, 2019. The tax rate is 20 percent. Show how this information is presented to external users in a multistep format.
Refer to E16.15. If Kaltenheuser determined in Year 2 that the patent’s useful life was only five years, what would be the amortization expense for Years 2 through 5?Data from in E16.15Kaltenheuser
Refer to E16.15. Assume Kaltenheuser spent $100,000 developing the process that led to the patent. What is the amortization expense each year? Why?Data FROM E16.15Kaltenheuser Corporation purchased a
This income statement was prepared by Bob’s Bookkeeping Service for the Atlas Corporation:Required:A. Make a list of all the errors found on this income statement and briefly describe what is
How are investing activities reported on the statement of cash flows?
Worth Company recently purchased an oil well for $3.5 million. This well is expected to produce 700,000 barrels of oil overits life. What is the depletion rate if Worth uses the units-of production
Refer to E16.19. If Worth Company produced 100,000 barrels of oil in its first year, what would be the accumulated depletion balance?Data from E16.19Worth Company recently purchased an oil well for
What is the one difference between accounting for Trading Securities and Available-for-Sale Securities when the Market Value Approach is used?
Julia Barton is responsible for accounting for Equine Inc.’s short-and long-term investments. This is Equine’s first year in business and she reports to you that she has $102,000 of Trading
Hora Sporting Goods decided to sell its children’s toy division during 2019. The following relevant information is available. Use this information to determine the income (loss) from operations of

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