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Principles Of Accounting Volume 2 Chapters 12-25 1st Edition Robert Libby, Patricia Libby, Fred Phillips, Stacey Whitecotton - Solutions
M15-9 Computing and Interpreting Return on Assets Ratio M.A.D. Company reported the following information at the end of each year: Year Net Income Total Assets 2008 $152,000 $ 52,000 2009 195,000 68,000 2010 201,000 134,000 2011 212,000 145,000 Compute return on assets for 2009, 2010, and 2011.
M15-8 Determining Financial Statement Effects of Equity Method Securities Using the information in M15-7, indicate in the following table the effects and amounts of each transaction listed. Use + for increase, − for decrease, and NE for no effect. Transaction July 2 Dec. 31 BALANCE SHEET INCOME
M15-7 Recording Equity Method Securities Transactions On January 1, 2011, Ubuy.com acquired 25 percent (10,000 shares) of the common stock of E-Net Corporation. The accounting period for both companies ends December 31. Give the journal entries for each of the following transactions that occurred
M15-6 Determining Financial Statement Effects of Available-for-Sale Securities Transactions Using the information in M15-4, indicate in the following table the effects and amounts of each transaction listed. Use + for increase, − for decrease, and NE for no effect. Transaction July 2 Dec. 15 Dec.
M15-5 Determining Financial Statement Effects of Trading Securities Transactions Using the information in M15-3, indicate in the following table the effects and amounts of each transaction listed. Use + for increase, − for decrease, and NE for no effect. BALANCE SHEET INCOME STATEMENT Transaction
M15-4 Recording Available-for-Sale Securities Transactions Using the data in M15-3, assume Princeton Company purchased the voting stock of Cox Corporation for the available-for-sale portfolio instead of the trading securities portfolio. Give the journal entries for each of the transactions listed.
M15-3 Recording Trading Securities Transactions During 2009, Princeton Company acquired some of the 50,000 outstanding shares of the common stock, par $10, of Cox Corporation as trading securities. The accounting period for both companies ends December 31. Give the journal entries for each of the
M15-2 Recording a Bond Investment Wall Company purchased $1,000,000, 8 percent bonds issued by Janice Company on January 1, 2010. The purchase price of the bonds was $1,070,000. Management plans and has the ability to hold bonds until their maturity date. Interest is payable semiannually each June
M15-1 Matching Measurement and Reporting Methods Match the following. Answers may be used more than once. Measurement Method A. Market value method 1. More than 50 percent ownership B. Equity method 2. Bonds held to maturity C. Consolidation 3. Less than 20 percent ownership D. Amortized cost 4. At
10. Which of the following is true regarding the use of the return on assets ratio?a. Evaluates the efficiency of a company given the capital contributed by owners.b. Evaluates the financing strategy of a company.c. Evaluates the profit generated for every dollar of sales.d. Evaluates how
9. Consolidated financial statements are required in which of the following situations?a. Only when a company can exert significant influence over another company.b. Only when a company acquires another company for more than it is valued.c. Only when a parent company can exercise control over its
8. Kelly Company acquired 500 shares of stock of Drucker Company at $60 per share as a long-term investment. This represents 40 percent of the outstanding voting shares of Drucker. During the year, Drucker paid stockholders $2 per share in dividends. At year-end, Drucker reported net income of
7. Kelly Company acquired 500 shares of stock of Drucker Company at $60 per share as a long-term investment. This represents 10 percent of the outstanding voting shares of Drucker. During the year, Drucker paid stockholders $2 per share in dividends. At year-end, Drucker reported net income of
6. When using the equity method, when is revenue recorded on the books of the investor company?a. When the market value of the investee stock increases.b. When a dividend is received from the investee.c. When the investee company reports net income.d. Both (b) and (c).
5. When recording dividends received from a stock investment accounted for using the equity method, which of the following statements is true?a. Total assets are increased and net income is increased.b. Total assets are increased and total owners’ equity is increased.c. Total assets are decreased
4. Realized gains and losses are recorded on the income statement for which of the following transactions in Trading Securities and Securities Available for Sale?a. When adjusting a trading security to its market value.b. When adjusting a security available for sale to its market value.c. Only when
3. Dividends received from a stock that is reported as a security available for sale in the Long-Term Assets section of the balance sheet are reported as which of the following?a. Increase to cash and a decrease to the Investment in Marketable Securities account.b. Increase to cash and an
2. Company A purchases 10 percent of Company X and intends to hold the stock for at least five years. At the end of the current year, how would Company A report on its December 31 (year-end) balance sheet its investment in Company X?a. At original cost in the Current Assets section.b. At the
1. Company A owns 40 percent of Company B and exercises significant influence over Company B management. Therefore, Company A uses what method of accounting for and reporting its ownership of stock in Company B?a. Amortized cost method.b. Market-value method.c. Equity method.d. Consolidation of the
12. Explain the basic concept underlying consolidated statements.
11. What is a parent–subsidiary relationship?
10. Under the equity method, dividends received from the investee company are not recorded as revenue. To record dividends as revenue involves double counting. Explain.
9. Under the equity method, why does the investor company measure revenue on a proportionate basis when the investee company reports income rather than when dividends are declared?
8. Under the market value method, when and how does the investor company measure investment revenue?
7. What are securities available for sale? How are they reported on the balance sheet, and how is income determined and reported on the income statement?
6. What are trading securities? How are they reported on the balance sheet, and how is income determined and reported on the income statement?
5. Explain how to report bonds held to maturity on the balance sheet.
4. What are the accounting methods used for passive investments, investments in which the investor can exert significant influence, and investments in which the investor has control over another entity?
3. What area. Passive investments?b. Investments for significant influence?c. Investments for control?
2. Why do companies invest in debt and stock securities?
1. Explain the difference between a short-term investment and a long-term investment.
CP14-8 (Supplement 14C) Preparing a Bond Amortization Schedule (Straight-Line Amortization) Refer to the information in CP14-7 and prepare a worksheet that reproduces the straight-line bond discount amortization schedule shown in Supplement 14C (page 623). Provide a printout showing both the
CP14-7 (Supplement 14B) Preparing a Bond Amortization Schedule (Effective-Interest Amortization) Assume the authors of a popular accounting principles text have hired you to create spreadsheets that will calculate bond discount amortization schedules like those shown in Supplements 14B and 14C.You
CP14-6 Thinking Critically: Evaluating Effects on Debt-to-Assets Ratio Assume you work as an assistant to the chief financial officer (CFO) of Little Chip Company. The CFO reminds you that the fiscal year end is only one month away and that he is looking to you to ensure the company adheres to its
CP14-5 Making Ethical Decisions: A Mini Case Assume you are a portfolio manager for a large insurance company. The majority of the money you manage is from retired school teachers who depend on the income you earn on their investments. You have invested a significant amount of money in the bonds of
CP14-4 Making Ethical Decisions: A Real-Life Example Many retired people invest a significant portion of their money in bonds of corporations because of their relatively low level of risk. During the 1980s, significant inflation caused some interest rates to rise to as high as 15 percent. Retired
CP14-3 Examining an Annual Report: Internet-Based Team Research As a team, select an industry to analyze. Using your Web browser, each team member should acquire the annual report or 10-K for one publicly traded company in the industry, with each member selecting a different company. (See CP1-3 in
CP14-2 Comparing Financial Information Refer to the financial statements of The Home Depot in Appendix A and Lowe’s in Appendix B at the end of this book, or download the annual reports from the Cases and Projects section of the text’s Web site at www.mhhe.com/LLPW1e . Required: 1. Calculate,
CP14-1 Finding Financial Information Refer to the financial statements of The Home Depot in Appendix A at the end of this book, or download the annual report from the Cases and Projects section of the text’s Web site at www.mhhe.com/LLPW1e. Required: 1. Calculate, to two decimal places, the
PB14-9 (Supplements 14A and 14C) Computing Bond Issue Price with Present Values, and Recording Bond Issue, Interest Payments (Straight-Line Amortization), and Early Bond Retirement Refer to PB14-8. Assume Methodical uses the straight-line method of amortization. Required: 1. Compute the bond issue
PB14-8 (Supplements 14A and 14B) Computing Bond Issue Price with Present Values, and Recording Bond Issue, Interest Payments (Effective-Interest Amortization), and Early Bond Retirement On January 1, 2008, Methodical Manufacturing issued 100 bonds, each with a face value of $1,000, a stated
PB14-7 (Supplement 14C) Interpreting and Completing an Amortization Schedule (StraightLine Amortization) Toon Corporation (TC) issued bonds and received cash in full for the issue price. The bonds were dated and issued on January 1, 2009. The stated interest rate was payable at the end of each
PB14-6 (Supplement 14B) Interpreting and Completing an Amortization Schedule (EffectiveInterest Amortization) Amhert Corporation issued bonds and received cash for the issue price. The bonds were dated and issued on January 1, 2008. The stated interest rate was payable at the end of each year. The
PB14-4 (Supplement 14B) Recording Bond Issue, Interest Payments (Effective-Interest Amortization), and Early Retirement WestCoast Airlines Corporation issued bonds with the following details: Face value: $500,000. Interest: 7 percent per year paid each December 31. Terms: Bonds issued January 1,
PB14-3 (Supplement 14A) Comparing and Recording a Discounted Note Payable and Capital Lease Liability with Present Value Computations Refer to PB14-1. Assume that Bridge Construction Company can acquire a comparable piece of equipment by signing a promissory note that requires a single payment of
PB14-2 Comparing Bonds Issued at Par, Discount, and Premium Net Work Corporation, whose annual accounting period ends on December 31, issued the following bonds: Date of bonds: January 1, 2009. Maturity amount and date: $200,000 due in 10 years (December 31, 2018). Interest: 10 percent per year
PB14-1 Comparing and Recording a Discounted Note Payable and Capital Lease Liability Bridge Construction Company is evaluating whether to purchase a piece of equipment or rent it. The company is short on cash, so a purchase would require Bridge to finance the equipment’s cost by signing a
PA14-9 (Supplements 14A and 14C) Computing Bonds Issue Price with Present Values, and Recording Bond Issue, Interest Payments (Straight-Line Amortization), and Early Bond Retirement On January 1, 2008, Loop Raceway issued 600 bonds, each with a face value of $1,000, a stated interest rate of 5
PA14-8 (Supplements 14A and 14B) Computing Bond Issue Price with Present Values, and Recording Bond Issue, Interest Payments (Effective-Interest Amortization), and Early Bond Retirement On January 1, 2008, Surreal Manufacturing issued 600 bonds, each with a face value of $1,000, a stated interest
PA14-7 (Supplement 14C) Interpreting and Completing an Amortization Schedule (StraightLine Amortization) The Peg Corporation (TPC) issued bonds and received cash in full for the issue price. The bonds were dated and issued on January 1, 2009. The stated interest rate was payable at the end of each
PA14-6 (Supplement 14B) Interpreting and Completing an Amortization Schedule (EffectiveInterest Amortization) Hondor Corporation issued bonds and received cash for the issue price. The bonds were dated and issued on January 1, 2008. The stated interest rate was payable at the end of each year. The
PA14-5 (Supplement 14C) Recording Bond Issue, Interest Payments (Straight-Line Amortization), and Early Retirement Complete the requirements of PA14-4, assuming Southwest Corporation uses straight-line amortization.
PA14-4 (Supplement 14B) Recording Bond Issue, Interest Payments (Effective-Interest Amortization), and Early Retirement Southwest Corporation issued bonds with the following details: Face value: $600,000. Interest: 9 percent per year paid each December 31. Terms: Bonds issued January 1, 2009,
PA14-3 (Supplement 14A) Comparing and Recording a Discounted Note Payable and Capital Lease Liability with Present Value Computations Refer to PA14-1. Assume Rockwell Industries can acquire a comparable piece of equipment by signing a promissory note that requires a single payment of $80,000 three
PA14-2 Comparing Bonds Issued at Face Value, Discount, and Premium Sikes Corporation, whose annual accounting period ends on December 31, issued the following bonds: Date of bonds: January 1, 2008. Maturity amount and date: $200,000 due in 10 years (December 31, 2017). Interest: 10 percent per year
PA14-1 Comparing and Recording a Discounted Note Payable and Capital Lease Liability Rockwell Industries is evaluating whether to purchase a piece of equipment or rent it. The company is a little short on cash, so a purchase would require Rockwell to finance the equipment’s cost by signing a
E14-21 (Supplement 14C) Recording the Effects of a Discount Bond Issue and First Interest Payment and Preparing a Discount Amortization Schedule (Straight-Line Amortization) Refer to the information in E14-20 but assume Seton Corporation uses the straight-line method to amortize the bond discount.
E14-20 (Supplement 14B) Recording the Effects of a Discount Bond Issue and First Interest Payment and Preparing a Discount Amortization Schedule (Effective-Interest Amortization) On January 1, 2009, when the market interest rate was 9 percent, Seton Corporation sold a $200,000, 8 percent bond issue
E14-19 (Supplement 14C) Recording the Effects of a Premium Bond Issue and First Interest Payment (Straight-Line Amortization) Refer to the information in E14-9 and assume Grocery Corporation uses the straight-line method to amortize the bond premium. Required: 1. Prepare the journal entry to record
E14-18 (Supplement 14B) Recording the Effects of a Premium Bond Issue and First Interest Payment (Effective-Interest Amortization) Refer to the information in E14-9 and assume Grocery Corporation uses the effective-interest method to amortize the bond premium. Required: 1. Prepare the journal entry
E14-17 (Supplement 14A) Calculating Present Values Refer to E14-11. Show how Craig Legal Services determined the cash-equivalent amount of $26,730 on June 1, 2009. What interest rate does this imply?
E14-16 (Supplement 14A) Calculating Present Values Refer to E14-9. Show how investors determined the price of Grocery Corporation’s bonds on January 1, 2008 to be $300,328.
E14-15 (Supplement 14A) Calculating Present Values Refer to E14-4. Show how Deep Powder’s accountants determined that the cash-equivalent amount on January 1, 2008, was $100,000.
E14-14 (Supplement 14A) Calculating Present Values Refer to E14-3. Show how, Left Foot Shoes determined that the cash-equivalent amount on January 1, 2008, was $50,000.
E14-13 Reporting Long-term Liabilities on a Classified Balance Sheet TJX Companies, Inc., owns discount clothing stores operating in the United States under the store names Marshall’s and TJ Maxx. For its year ended January 27, 2007, TJX Companies reported the following liabilities (all amounts
E14-12 Calculating and Interpreting the Debt-to-Assets Ratio and Times Interest Earned Ratio According to its Web site, Kraft Foods Inc. sells enough Kool-Aid mix to make 1,000 gallons of the drink every minute during the summer and more than 560 million gallons each year. At December 31, 2007, the
E14-11 Recording Lease Transactions On June 1, 2009, National Equipment Rental leased equipment to the Glendale Community Club and Craig Legal Services. Glendale signed a lease indicating the club would rent portable tables for the month of June 2009 at a cost of $1,000 to be paid in July 2009.
E14-10 Computing Price for One-Year Bond Speedy Housing issued 200 bonds, each with a face value of $1,000 and stated interest rate of 5 percent to be paid out exactly one year after the issue date. Required: Determine your return on the 200 bonds if you purchased them all on the issue date for 1.
E14-9 Describing the Effects of a Premium Bond Issue and Interest Payment on the Financial Statements, Debt-to-Assets Ratio, and Times Interest Earned Ratio Grocery Corporation received $300,328 for $250,000, 11 percent bonds issued on January 1, 2008, at a market interest rate of 8 percent. The
E14-8 Preparing Journal Entries to Record Issuance of a Bond at Face Value, Payment of Interest, and Early Retirement On January 1, 2009, Innovative Solutions, Inc., issued 200 bonds at face value ($1,000 each). The bonds have a stated interest rate of 6 percent, mature in 10 years, and pay
E14-7 Determining Bond Price and Preparing Journal Entries to Record Bond Issue and Interest Payment On January 1, 2008, Applied Technologies Corporation (ATC) issued 600 bonds, each with a face value of $1,000 and a maturity date of December 31, 2017. The bonds have a stated interest rate of 10
E14-6 Accounting for Bonds Issued at Face Value with Interest Accrual and Maturity Repayment On January 1, 2009, Arena Enterprises issued 300 bonds at face value. The bond certificates indicate a face value of $1,000, a stated interest rate of 6 percent paid annually on December 31, and a December
E14-5 Accounting for Bonds Issued at Face Value with Interest Accrual and Early Retirement On October 1, 2009, Garden Equipment Corporation issued 2,000 bonds at face value. The bond certificates indicate a face value of $1,000, a stated interest rate of 7 percent paid annually on September 30, and
E14-4 Accounting for a Discounted Note Issue, Interest, and Maturity Deep Powder Corporation issued a discounted note on January 1, 2008, in exchange for new snowmaking equipment. The note requires a $121,551 payment on December 31, 2011. Using an annual interest rate of 5 percent to discount the
E14-3 Accounting for a Discounted Note Issue, Interest, and Maturity Left Foot Shoes issued a discounted note on January 1, 2008, in exchange for new equipment. The note requires a payment of $56,180 on December 31, 2009. Using an annual interest rate of 6 percent to discount the payment, you
E14-2 Accounting for an Interest-Bearing Note Issue, Interest, and Maturity Right Foot Shoes issued a two-year, $50,000 interest-bearing note on January 1, 2008, in exchange for new equipment. Interest accrues at 6 percent annually but is not paid until maturity. Required: Record the journal
E14-1 Choosing between Debt and Equity Financing Novelty Productions is operated as a sole proprietorship by its founder, Tina Wilkins. Tina is an inventor who recently created a new product that is growing in popularity. Tina needs to expand the business but has already contributed all personal
M14-21 (Supplement 14C) Recording Bond Issuance and Interest Payment (Straight-Line Amortization) Simko Company issued $600,000, 10-year, 5 percent bonds on January 1, 2009. The bonds were issued for $580,000. Interest is payable annually on January 1. Using straight-line amortization, prepare
M14-20 (Supplement 14B) Recording Bond Issuance and Interest Payment (Effective-Interest Amortization) Clem Company issued $800,000, 10-year, 5 percent bonds on January 1, 2009. The bonds sold for $741,000. Interest is payable annually on January 1. Using effective-interest amortization, prepare
M14-19 (Supplement 14A) Calculating Present Values Refer to M14-12. Show how Hamilton’s accountants determined that the cash-equivalent amount on June 30, 2008, was $368,005.
M14-18 (Supplement 14A) Calculating Present Values Refer to M14-4. Show how ACME’s accountants determined that the cash-equivalent amount on January 1, 2009, was $100,000.
M14-17 (Supplement 14A) Calculating Present Values Refer to M14-3. Show how Touchstone’s accountants determined that the cash-equivalent amount on January 1, 2008, was $20,000.
M14-16 (Supplement 14A) Calculating Present Values Refer to M14-2. Show how Shaw’s accountants determined that the cash-equivalent amount on January 1, 2009, was $100,000.
M14-15 (Supplement 14A) Calculating Present Values Refer to M14-1. Show how Steelmet’s accountants determined that the cash-equivalent amount on January 1, 2008, was $24,000.
M14-14 Analyzing the Impact of Transactions on the Debt-to-Assets Ratio BSO, Inc., has total liabilities of $500,000 and total assets of $1,000,000, resulting in a debt-to-assets ratio of 0.50 (or 50 percent). For each of the following independent events, determine whether the debt-to-assets ratio
M14-13 Computing the Debt-to-Assets Ratio and the Times Interest Earned Ratio The balance sheet for Food Maker Corporation (FMC) reported the following: total assets, $250,000; noncurrent assets, $150,000; current liabilities, $40,000; total stockholders’ equity, $90,000; net income, $3,320;
M14-12 Recording Operating and Capital Leases Prepare the journal entries that Hamilton Property should make on June 30, 2008, to record the following transactions, in which Hamilton is the lessee.a. Made a lease payment of $8,000 on June 30, 2008, for equipment rented in June under an operating
M14-11 Recording Early Retirement of Bonds Refer to M14-9. Prepare journal entries that would be recorded if the bonds were retired early by repurchasing them at a price of (a) 99 or (b) 100.5. Explain why an early bond retirement is likely to result in a gain or loss.
M14-10 Determining Financial Statement Effects of an Early Retirement of Debt If the market price of a bond increased after it was issued and the company decided to retire its debt early, would you expect the company to report a gain or loss on debt retirement? Describe the financial statement
M14-9 Recording Bonds Issued at Face Value Shark’s Pool Company issued 2,000, 10-year, 6 percent, $1,000 bonds on July 1, 2009, at face value. Interest is payable each June 30. Show the journal entries and accounting equation effects for (a) the issuance of these bonds on July 1, 2009, and (b)
M14-8 Recording Bonds Issued at Face Value Schlitterbahn Waterslide Company issued 25,000, 10-year, 6 percent, $100 bonds on January 1, 2009, at face value. Interest is payable each December 31. Show the journal entries and accounting equation effects for (a) the bond issue on January 1, 2009, and
M14-7 Computing and Reporting a Bond Liability at an Issuance Price of 103 Repeat M14-6 assuming the bonds are issued at 103.
M14-6 Computing and Reporting a Bond Liability at an Issuance Price of 98 E-Tech Initiatives Limited plans to issue $500,000, 10-year, 4 percent bonds. Interest is payable annually on December 31. All of the bonds will be issued on January 1, 2009. Show how the bonds would be reported on the
M14-5 Determining Bond Discount or Premium from Quoted Price On October 1, 2006, biz.yahoo.com quoted a bond price of 101.5 for F ord Motor Company’s 9.875 percent bonds maturing on August 10, 2011. Were the bonds selling at a discount or premium? Does this mean the market interest rate for
M14-4 Recording Discounted Note Issue, Interest, and Maturity Repayment On January 1, 2009, ACME Corporation purchased new aviation equipment by issuing a note that promises to pay $110,250 on December 31, 2010. Assuming a 5 percent annual interest rate, the cashequivalent amount on January 1,
M14-3 Recording Discounted Note Issue, Interest, and Maturity Repayment On January 1, 2008, Touchstone Developments purchased a new excavator by issuing a note that promises to pay $22,898 on December 31, 2009. Assuming a 7 percent annual interest rate, the cashequivalent amount on January 1,
M14-2 Recording Discounted Note Issue and Interest Accruals On January 1, 2009, Shaw Cable purchased new computer switching equipment by issuing a note that promises to pay $115,762.50 on December 31, 2011. Assuming a 5 percent annual interest rate, the cash-equivalent amount on January 1, 2009, is
M14-1 Recording Discounted Note Issue and Interest Accruals On January 1, 2008, Steelmet Furniture purchased new welding equipment by issuing a note that promises to pay $27,783 on December 31, 2010. Assuming a 5 percent annual interest rate, the cashequivalent amount on January 1, 2008, is
10. Which of the following expenses is recorded on an operating lease?a. Depreciation Expense.b. Interest Expense.c. Rent Expense.d. All of the above.
9. For the year ended December 31, 2006, Land O’ Lakes, Inc., reported income from operations of $124,195, net income of $88,666, interest expense of $58,360, and income tax expense of $7,806. What was this dairy company’s times interest earned ratio for the year?a. 0.65c. 2.13b. 1.51d. 2.65
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