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Principles Of Accounting Volume 2 Chapters 12-25 1st Edition Robert Libby, Patricia Libby, Fred Phillips, Stacey Whitecotton - Solutions

8. To determine whether a bond will be issued at a premium, discount, or at face value, one must know which of the following pairs of information?a. The face value and the stated interest rate on the date the bonds were issued.b. The face value and the market interest rate on the date the bonds
7. Which of the following terms describes bonds that are issued without security?a. Zero coupon.c. Serial.b. Debentures.d. Callable.
6. Which of the following is false when a bond is issued at a premium?a. The bond is issued at an amount above its face value.b. Interest expense will exceed the cash interest payments.c. The market interest rate is lower than the stated interest rate.d. The issue price will be quoted at a number
5. Which of the following does not impact the calculation of the cash interest payments to be made to bondholders?a. Face value of the bond.b. Stated interest rate.c. Market interest rate.d. Length of time between payments.
4. A corporate bond issued at 102 is currently trading at 97. Which of the following is true?a. The corporation reports a bond discount on the balance sheet.b. The corporation reports a bond premium on the income statement.c. The stated interest rate was less than the market interest rate on the
3. A three-year discounted note payable, which requires a payment of $595,508 at maturity on December 31, 2010, had an adjusted balance of $530,000 at December 31, 2008. Assuming 6 percent annual interest, which of the following adjusting journal entries should be recorded on December 31, 2009?a.
2. A company purchases a piece of equipment and pays for it by signing a discounted note payable that requires a single payment of $134,776 in three years. How does the company account for this transaction?a. The payment of $134,776 is reported as a noncurrent liability on the date of purchase.b.
1. Which of the following best describes a reason for using debt rather than equity financing?a. Owners may not have sufficient resources available to contribute to the business.b. Debt must be repaid (or refinanced) when it matures.c. Owners may forgo withdrawals to help the business survive its
19. (Supplement 14C) How is interest expense calculated using the straight-line method of amortization for a bond issued at (a) a discount and (b) a premium?
18. (Supplement 14B) How is interest expense calculated using the effective-interest method of amortization for a bond issued at (a) a discount and (b) a premium?
17. (Supplement 14A) If you are asked to compute the present value of an amount compounded quarterly using an annual rate of 8 percent for five years, what combination of interest rates and interest periods should you use?
16. (Supplement 14A) How does the purpose of compounding differ from the purpose of discounting? Which procedure (compounding or discounting) is more likely to be used in accounting?
15. If a company’s debt-to-assets ratio increases, is it more or less likely to be able to pay the amounts it owes? If a company’s times interest earned ratio decreases, has it become a better or worse credit risk?
14. What aspect of a lease agreement distinguishes a capital lease from an operating lease? In what ways does the accounting for capital leases differ from the accounting for operating leases?
13. What two categories can be used to characterize seemingly limitless types of bonds?
12. What three financial effects arise when a bond is retired early?
11. In the context of bonds payable, to what does the term “carrying value” refer? In this same context, to what does the term “amortization” refer?
10. Will the stated interest rate be higher than the market interest rate or will the market interest rate be higher than the stated interest rate when a bond is issued at (a) face value, (b) a discount, and (c) a premium?
9. What is the difference between the stated interest rate and the market interest rate on a bond?
8. Assuming simple annual compounding, how much should you pay for a one-year bond with a stated interest rate of 5 percent and a face value of $1,000 if you want to earn a return of 5 percent? What is the maximum you would be willing to pay if you want to earn a return of 8 percent? What is the
7. What are the reasons that some bonds are issued at a discount and others are issued at a premium?
6. How are bond prices typically quoted? If an issuer sells 900 bonds, each with a face value of $1,000, at an issue price of 99.8, how much cash is received by the issuer? Describe how this would be reported by the issuer in the financial statements on the date of issue.
5. What are the three key elements of a bond, and which is/ are indicated on the face of a bond certificate?
4. What accounting principle requires that interest expense be recorded each period even when interest has not been paid?
3. How does a discounted note payable differ from an interestbearing note payable, a topic introduced in Chapter 11? In what two ways does the accounting for these notes differ?
2. What term describes the amount at which liabilities are first recorded? Does this include interest? Why or why not?
1. Why might a business finance using debt rather than equity? Why might a different business rely on equity rather than debt?
CP13-7 Charting Stock Price Movement around Important Announcement Dates Using a Web search engine like Google, find either an earnings or dividend announcement for two different companies. Using a source such as bigcharts.com , determine the closing stock price for each company for each day during
CP13-6 Thinking Critically Making a Decision as an Investor You have retired after a long and successful career as a business executive and now spend a good portion of your time managing your retirement portfolio. You are considering two basic investment alternatives. You can invest in (1)
CP13-5 Making Ethical Decisions: A Mini Case You are the president of a very successful Internet company that has had a remarkably profitable year. You have determined that the company has more than $10 million in cash generated by operating activities not needed in the business. You are thinking
CP13-4 Making Ethical Decisions: A Real-Life Example Activision became a public company with an initial public offering of stock on June 9, 1983, at $12 per share. In June 2002, Activision issued 7.5 million additional shares to the public at approximately $33 per share. In October 2002, when its
CP13-3 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
CP13-2 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. Did Lowe’s
CP13-1 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. As of February 3, 2008, how many shares of
PB13-6 Computing and Interpreting Earnings per Share (EPS) and Price/Earnings (P/E) Ratios Two magazine companies reported the following in their 2008 financial statements: BUSINESSWORLD FUN AND GAMES 2007 2008 2007 2008 Average number of common shares 20,000 22,000 40,000 45,000 Net income $65,000
PB13-5 Comparing Stock and Cash Dividends Ritz Company had the following stock outstanding and Retained Earnings at December 31, 2009: Common stock (par $1; outstanding, 500,000 shares) $500,000 Preferred stock, 8% (par $10; outstanding, 21,000 shares) 210,000 Retained earnings 900,000 The board of
PB13-4 Recording Journal Entries and Preparing a Partial Balance Sheet after Common Stock Issue, Purchase, Reissue, and Cash Dividends Waste Control, Inc. reported the following stockholders’ equity account balances on January 1, 2009. Common stock, 20,000 shares of $1 par $ 20,000 Retained
PB13-3 Finding Missing Amounts At December 31, 2009, the records of Kozmetsky Corporation provided the following selected and incomplete data: Common stock (par $1; no changes during 2009). Shares authorized, 5,000,000. Shares issued, ? ; issue price $80 per share. Shares held as treasury stock,
PB13-2 Recording Dividends National Beverage Corp. produces soft drinks, bottled waters, and juices sold under the brand names Shasta, Faygo, and Everfresh. A press release contained the following information:Required: 1. Prepare any journal entries that National Beverage Corp. should make to
PB13-1 Recording Journal Entries and Preparing a Partial Balance Sheet after Stock Issue and Purchase Transactions Global Marine obtained a charter from the state in January 2009, which authorized 1,000,000 shares of common stock, $5 par value. During the first year of operations, the company
PA13-6 Computing and Interpreting Earnings per Share (EPS) and Price/Earnings (P/E) Ratios Aaron Rents, Inc., and Rent-A-Center, Inc., are two publicly traded rental companies. They reported the following in their 2006 financial statements (in thousands, except per share amounts):Required: 1.
PA13-5 Comparing Stock and Cash Dividends Water Tower Company had the following stock outstanding and retained earnings at December 31, 2009: Common stock (par $8; outstanding, 30,000 shares) $240,000 Preferred stock, 7% (par $10; outstanding, 6,000 shares) 60,000 Retained earnings 280,000 The
PA13-4 Recording Journal Entries and Preparing a Partial Balance Sheet after Common Stock Issue, Purchase, Reissue, and Cash Dividends American Laser, Inc. reported the following stockholders’ equity account balances on January 1, 2009. Common stock, 10,000 shares of $1 par $ 10,000 Retained
PA13-3 Finding Missing Amounts At December 31, 2009, the records of Nortech Corporation provided the following selected and incomplete data: Authorized shares of common stock, 200,000. Balance in common stock account $1,250,000 (par $10; no changes during 2009). Common stock issued in prior year at
PA13-2 Recording Dividends Prior to changing its corporate name to Macy’s, Inc., on June 1, 2007, Federated Department Stores issued a press release with the following information:Required: 1. Although the press release refers to a stock split, the transaction actually involved a 100 percent
PA13-1 Recording Journal Entries and Preparing a Partial Balance Sheet after Stock Issue, Purchase, and Reissue Transactions Worldwide Company obtained a charter from the state in January 2009, which authorized 200,000 shares of common stock, $10 par value. During the first year, the company earned
E13-20 Analyzing Stock Repurchases and Stock Dividends Winnebago is a familiar name on vehicles traveling U.S. highways. The company manufactures and sells large motor homes for vacation travel. These motor homes can be quickly recognized because of the company’s “flying W” trademark. An
E13-19 Preparing a Statement of Retained Earnings and Partial Balance Sheet and Evaluating Dividend Policy The following account balances were selected from the records of Blake Corporation at December 31, 2009, after all adjusting entries were completed. The company had not issued or repurchased
E13-18 Determining the Financial Statement Effects of Cash and Stock Dividends Lynn Company has outstanding 60,000 shares of $10 par value common stock and 25,000 shares of $20 par value preferred stock (8 percent). On December 1, 2009, the board of directors voted an 8 percent cash dividend on the
E13-17 Determining the Impact of Cash and Stock Dividends Superior Corporation has the following capital stock outstanding on January 1, 2009: Common stock, par $8, outstanding shares, 30,000. Preferred stock, 6 percent, par $15, outstanding shares, 8,000. On October 1, 2009, the board of directors
E13-16 Analyzing Dividends in Arrears Mission Critical Software, Inc., was a leading provider of systems management software for Windows NT network and Internet infrastructure. Like many start-up companies, Mission Critical struggled with cash flows as it developed new business opportunities. A
E13-15 Comparing Stock Dividends and Splits On July 1, 2009, Jones Corporation had the following capital structure: Common stock, $1 par, 200,000 authorized shares, 150,000 issued and outstanding $150,000 Additional paid-in capital 88,000 Retained earnings 172,000 Treasury stock None Required:
E13-14 Recording Dividends Black & Decker is a leading global manufacturer and marketer of power tools, hardware, and home improvement products. A press release on October 17, 2007, contained the following announcement:At the time of the press release, Black & Decker had 150,000,000 shares
E13-13 Analyzing Stock Dividends On December 31, 2008, the Stockholders’ Equity section of the balance sheet of R & B Corporation reflected the following: Common stock (par $10; authorized 60,000 shares, outstanding 25,000 shares) $250,000 Additional paid-in capital 12,000 Retained earnings
E13-12 Recording the Payment of Dividends and Preparing a Statement of Retained Earnings The 2009 annual report for Sneers Corporation disclosed that the company declared and paid preferred dividends in the amount of $119.9 million in 2009. It also declared and paid dividends on common stock in the
E13-11 Computing Dividends on Common and Preferred Stock and Analyzing Differences The records of Hoffman Company reflected the following balances in the stockholders’ equity accounts at December 31, 2009: Common stock, par $12 per share, 40,000 shares outstanding. Preferred stock, 8 percent, par
E13-10 Recording Stockholders’ Equity Transactions The annual report for Malibu Beachwear reported the following transactions affecting stockholders’ equity:a. Purchased $35,000 in treasury stock.b. Declared cash dividends in the amount of $25,420.c. Paid cash dividends in the amount of
E13-9 Comparing Owners’ Equity Sections for a Sole Proprietorship and Corporation Assume for each of the following independent cases that the annual accounting period ends on December 31, 2009, and that the Income Summary held a credit balance of $20,000. Case A: Assume that the company is a sole
E13-8 Recording Treasury Stock Transactions and Analyzing Their Impact During 2009, the following selected transactions affecting stockholders’ equity occurred for Corner Corporation:a. Feb. 1 Purchased 400 shares of the company’s own common stock at $22 cash per share.b. Jul. 15 Sold 100 of
E13-7 Finding Amounts Missing from the Stockholders’ Equity Section The Stockholders’ Equity section on the December 31, 2009, balance sheet of Chemfast Corporation follows:Required: Complete the following statements and show your computations. 1. The number of shares of preferred stock issued
E13-6 Recording and Reporting Stockholders’ Equity Transactions AvA School of Learning obtained a charter at the start of 2009 that authorized 50,000 shares of no-par common stock and 20,000 shares of preferred stock, par value $10, 5% noncumulative dividend. During 2009, the following selected
E13-5 Determining the Effects of the Issuance of Common and Preferred Stock Inside Incorporated was issued a charter on January 15, 2009, that authorized the following capital stock: Common stock, $6 par, 100,000 shares, one vote per share. Preferred stock, 7 percent, par value $10 per share, 5,000
E13-4 Reporting the Stockholders’ Equity Section of the Balance Sheet Shelby Corporation was organized in January 2010 by 10 stockholders to operate an air conditioning sales and service business. The charter issued by the state authorized the following capital stock: Common stock, $1 par value,
E13-3 Reporting the Stockholders’ Equity Section of the Balance Sheet North Wind Aviation received its corporate charter during January 2009. The charter authorized the following capital stock: Common stock: par $7, authorized 50,000 shares. Preferred stock: 8 percent, par $10, authorized 20,000
E13-2 Reporting Stockholders’ Equity and Determining Dividend Policy Incentive Corporation was organized as a corporation in 2008 to operate a financial consulting business. The charter authorized the following capital stock: common stock, par value $4 per share, 12,000 shares. During the first
E13-1 Computing Shares Outstanding Big Dog Holdings reported that, as of September 30, 2007, 30 million shares of common stock had been authorized. As of that date, 11,182,808 shares had been issued and 1,710,598 shares were held as treasury stock. Required: Determine the number of shares
M13-18 Inferring Financial Information Using the P/E Ratio In 2008, Rec Room Sports reported earnings per share of $8.50 when its stock was selling for $212.50. In 2009, its earnings increased by 20 percent. If all other relationships remain constant, what is the price of the stock in 2009? Explain.
M13-17 Determining the Impact of Transactions on Earnings per Share (EPS) Identify and explain the direction of effect ( + for increase, − for decrease, or NE for no effect) of each of the following transactions on EPS.a. Purchased 50 shares into treasury.b. Declared and paid a cash dividend.c.
M13-16 Calculating and Interpreting Earnings per Share (EPS) Academy Driving School reported the following amount in its financial statements: 2010 2009 Number of common shares 11,500 11,500 Net income $23,000 $18,000 Cash dividends paid on common stock $ 3,000 $ 3,000 Calculate 2010 EPS. Another
M13-15 Determining the Amount of a Preferred Dividend Colliers, Inc., has 100,000 shares of cumulative preferred stock outstanding. The preferred stock pays dividends in the amount of $2 per share but because of cash flow problems, the company did not pay any dividends last year. The board of
M13-14 Recording a Large Stock Dividend Refer to M13-13. Assume the company declared and issued a 50 percent stock dividend on the dates indicated. Prepare the journal entries to record the declaration and issuance.
M13-13 Recording a Small Stock Dividend Shriver Food Systems, Inc., declared a 10 percent stock dividend on May 1. The company has 800,000 shares authorized and 200,000 shares outstanding. The par value of the stock is $1 per share and the market value is $100 per share. The dividend was issued on
M13-12 Determining the Impact of a Stock Split Complete the requirements of M13-11 assuming that the company announced a 2-for-1 stock split.
M13-11 Determining the Impact of a Stock Dividend Sturdy Stone Tools, Inc., announced a 100 percent stock dividend. Determine the impact (increase, decrease, no change) of this dividend on the following: 1. Total assets. 2. Total liabilities. 3. Common stock. 4. Total stockholders’ equity. 5.
M13-10 Recording Dividends On April 15, 2009, the board of directors for Auction.com declared a cash dividend of 40 cents per share payable to stockholders of record on May 20. The dividends will be paid on June 14. The company has 500,000 shares of stock outstanding. Prepare any necessary journal
M13-9 Determining the Amount of a Dividend Netpass Company has 300,000 shares of common stock authorized, 270,000 shares issued, and 50,000 shares of treasury stock. The company’s board of directors declares a dividend of 50 cents per share on common stock. What is the total amount of the
proprietorship.
M13-8 Comparing Stockholder’s Equity to Owner’s Equity On January 1, Daniel Harrison contributed $20,000 to start his business. At the end of that year, the business had generated $30,000 in sales revenues, incurred $18,000 in operating expenses, and distributed $5,000 for Daniel to use to pay
M13-7 Determining the Effects of Treasury Stock Transactions Trans Union Corporation sold 5,000 shares for $50 per share in 2007, and it sold 10,000 shares for $37 per share in 2008. In 2009, the company purchased 2,000 shares of its own stock for $45 per share. Determine the impact (increase,
M13-6 Comparing Common Stock and Preferred Stock Your parents have just retired and have asked you for some financial advice. They have decided to invest $100,000 in a company very similar to Sonic Corp. The company has issued both common and preferred stock. Which type of stock would you
M13-5 Recording the Sale of Common Stock Refer to M13-4. Assume the issued stock has no par value. Record the journal entry for the sale of nopar value stock at $75. Do the effects on total assets, total liabilities, and total stockholders’ equity differ from those in M13-4?
M13-4 Recording the Sale of Common Stock To expand operations, Aragon Consulting issued 100,000 shares of previously unissued common stock with a par value of $1. The selling price for the stock was $75 per share. Record the journal entry for this sale of stock. Would your answer be different if
M13-3 Computing the Number of Unissued Shares The balance sheet for Crutcher Corporation reported 147,000 shares outstanding, 300,000 shares authorized, and 10,000 shares in treasury stock. Compute the maximum number of new shares that Crutcher could issue.
M13-2 Evaluating Stockholders’ Rights Name four rights of common stockholders. Which of these seems most important? Why?
M13-1 Favoring Equity versus Debt Financing Indicate whether each of the following favors the use of equity (E) or debt (D) financing. 1. Interest is tax deductible. 2. Dividends are optional. 3. Debt must be repaid. 4. Additional stock issuances dilute existing stockholders’ control.
10. In what situation does an investor’s personal wealth increase immediately?a. When receiving a cash dividend.b. When receiving a stock dividend.c. When a stock split is announced.d. In all of the above situations.
9. When treasury stock is purchased with cash, what is the impact on the balance sheet equation?a. No change—the reduction of the asset Cash is offset with the addition of the asset Treasury Stock.b. Assets decrease and Stockholders’ Equity increases.c. Assets increase and Stockholders’
8. Which statement regarding dividends is false?a. Dividends represent a sharing of corporate profits with owners.b. Both stock and cash dividends reduce retained earnings.c. Cash dividends paid to stockholders reduce net income.d. None of the above.
7. Which of the following transactions will increase the return on equity?a. Declare and issue a stock dividend.b. Split the stock 2-for-1.c. Repurchase the company’s stock.d. None of the above.
6. A journal entry is not recorded on what date?a. Date of declaration.b. Date of record.c. Date of payment.d. None of the above. (A journal entry is recorded on all of the above dates.)
5. Which of the following statements about the relative advantages of equity and debt financing is false?a. An advantage of equity financing is that it does not have to be repaid.b. An advantage of equity financing is that dividends are optional.c. An advantage of equity financing is that new
4. Which of the following is ordered from the largest number of shares to the smallest number of shares?a. Shares authorized, shares issued, shares outstanding.b. Shares issued, shares outstanding, shares authorized.c. Shares outstanding, shares issued, shares authorized.d. Shares in treasury,
3. Which of the following statements about stock dividends is true?a. Stock dividends are reported on the income statement.b. Stock dividends increase total stockholders’ equity.c. Stock dividends decrease total stockholders’ equity.d. None of the above.
2. Which statement regarding treasury stock is false?a. Treasury stock is considered to be issued but not outstanding.b. Treasury stock has no voting, dividend, or liquidation rights.c. Treasury stock reduces total stockholders’ equity on the balance sheet.d. None of the above.
1. Which feature is not applicable to common stock ownership?a. Right to receive dividends before preferred stock shareholders.b. Right to vote on appointment of external auditor.c. Right to receive residual assets of the company should it cease operations.d. None of the above (all are applicable
17. How do stock repurchases affect the EPS ratio? 18. Generally speaking, what does a high P/E ratio suggest?
16. Why is the EPS number so popular? What are its limitations?
15. Why might a corporation’s board declare a stock dividend rather than a stock split?
14. What is a stock dividend? How does a stock dividend differ from a cash dividend?
13. What is unique about cumulative preferred stock?

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