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principles financial accounting

Financial Accounting A Business Perspective 7th Edition Roger H. Hermanson, James Don Edwards - Solutions

The stockholders' equity of Briar Company on December 31, 1997, consisted of 1,000 authorized, issued, and outstanding shares of \(\$ 72\) cumulative preferred stock, stated value \(\$ 240\) per share, which were originally issued at \(\$ 1,192\) per share; 100,000 shares authorized, issued, and
The following stockholders' equity section is from Bell Company's October 31, 1997, balance sheet:During the ensuing fiscal year, Bell Company entered into the following transactions:1. The appropriation of \(\$ 12,000\) of retained earnings had been authorized in October 1997 because of the
Selected data for Brinks Company for 1998 are given below:Assume the applicable federal income tax rate is \(40 \%\). All of the items of expense, revenue, and loss are included in the computation of taxable income. The earthquake loss resulted from the first earthquake experienced at the company's
The stockholders' equity section of the Bates Corporation's balance sheet for June 30, 1998, follows:On July 1, 1998, the corporation's directors declared a \(10 \%\) stock dividend distributable on August 2 to stockholders of record on July 16. On November 1, 1998, the directors voted a \(\$
The following journal entries are for Keel Corporation:The management of Keel Corporation has asked you, a CPA, to analyze these journal entries and decide whether each is correct. The explanations are all correct. Wherever a journal entry is incorrect, prepare the journal entry that should have
Refer to the financial statements of The Coca-Cola Company in the annual report booklet. Note 11 discusses the treasury stock transactions during the 1996 fiscal period.\section*{Required}a. Based on the information in the balance sheet and the note, determine the number of common shares issued and
Based on the ethics case on page 481, answer the following questions concerning Ace Chemical Company in writing:a. Is this transaction fair to the creditors?b. Why wouldn't the officers merely declare a \(\$ 4\) million cash dividend? Is the proposed treasury stock transaction fair to the other
In teams of two to three students, go to the library to find articles evaluating accounting software packages. Use a periodicals index such as the Accounting and Tax Index or the Business Periodicals Index to locate these articles. Compare the cost and features of three accounting software
With a small group of students, go to the library and locate Statement of Financial Accounting Standards No. 4, "Reporting Gains and Losses from Extinguishing of Debt," published by the Financial Accounting Standards Board. Write a report to your instructor giving the highlights of the standard.
With one or two other students, locate the annual reports of three companies and study their statements of stockholders' equity. Determine why the number of common shares outstanding changed (if at all) during the current year. For instance, the number of outstanding shares may have increased due
Visit the following website for Computer Associates International, Inc.:\section*{http://www.cai.com}Pursue choices on the screen until you locate the consolidated statement of stockholders' equity. You will probably go down some "false paths" to get to this financial statement, but you can get
Visit the following website for International Paper:http://www.ipaper.com Pursue choices on the screen until you locate the consolidated statement of stockholders' equity. You will probably go down some "false paths" to get to this financial statement, but you can get there. This experience is all
Under the cost method, the investment account is adjusted when dividends are received.
The cost method should be used when a corporation makes a long-term investment of less than \(20 \%\), and there is no significant control.
In a stock split, the investor does not recognize revenue, but reduces the cost per share of stock.
Trading securities and available-for-sale securities should be grouped separately in applying the fair market value rules.
When making elimination entries, the entries are made only on the consolidated statements work sheet and not on the accounting records of the parent and subsidiary.
(Based on appendix) Pronouncements issued by the International Accounting Standards Committee (IASC) must be followed by member nations.
In which of the following cases is the investor company limited to use of the equity method in accounting for its stock investments?a. Short-term investments.b. Long-term investments of less than \(20 \%\).c. Long-term investments of \(20 \%-50 \%\).d. Long-term investments of more than \(50 \%\).
Under the equity method, which of the following is true?a. Dividends received reduce the investment account.b. Dividends received increase the investment account.c. The investor's share of net income decreases the investment account.d. The investor's share of net loss increases the investment
When the fair market value rules are followed, which of the following is true when the market value of the stocks in the Trading Securities account falls below their cost?a. The Unrealized Losses on Trading Securities account is credited.b. The Recovery of Market Value of Trading Securities account
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.
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.
(Based on appendix) Which of the following statements is true regarding the environment of international accounting?a. More and more nations are switching to a marketoriented economy.b. The accounting practices around the world are almost completely harmonized.c. The other nations of the world are
For what reasons do corporations purchase the stock of other corporations?
Explain how marketable securities should be classified in the balance sheet.
Describe the valuation bases used for marketable equity securities.
Under what circumstances is the equity method used to account for stock investments?
Explain briefly the accounting for stock dividends and stock splits from the investor's point of view.
Of what significance is par value to the investing corporation?
What is the purpose of preparing consolidated financial statements?
Under what circumstances must consolidated financial statements be prepared?
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?
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?
The item Minority interest often appears as one amount in the consolidated balance sheet. What does this item represent?
How do a subsidiary's earnings, losses, and dividends affect the investment account of the parent when the equity method of accounting is used?
When must each of the following methods be used to account for a business combination?a. Purchase.b. Pooling of interests.
List three differences between the purchase and pooling of interests methods of accounting for business combinations.
Why are consolidated financial statements of limited usefulness to the creditors and minority stockholders of a subsidiary?
Distinguish between a purchase and a pooling of interests.
(Based on appendix) Why do differences exist in accounting standards and practices from nation to nation?
(Based on appendix) How successful have efforts at harmonization been to date?
Real World Question. Based on the financial statements of The Coca-Cola Company contained in the annual report booklet, what was the 1996 Investment in Coca-Cola Enterprises, Inc., balance? According to Note 2, what percentage of Coca-Cola Enterprises, Inc., does The Coca-Cola Company own? What
Real World Question. Based on the financial statements of John H. Harland Company contained in the annual report booklet, what was the 1996 ending longterm investment balance? What was the net change from 1995 ?
On July 1, 1999, Tam Company purchased 200 shares of Del Company capital stock as a temporary investment (trading securities) at \(\$ 676.80\) per share plus a commission of \(\$ 720\). On July 15 , a \(10 \%\) stock dividend was received. Tam received a cash dividend of \(\$ 3.60\) per share on
Key Company purchased 200 shares of Franklin Company stock at a total cost of \(\$ 7,560\) on July 1, 1999. At the end of the accounting year (December 31, 1999), the market value for these shares was \(\$ 6,840\). By December 31,2000 , the market value had risen to \(\$ 7,920\). This stock is the
Corbit Company has marketable equity securities that have a fair market value at year-end that is \(\$ 13,440\) 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 available-for-sale
Ruiz Company owns \(75 \%\) of Sim Company's outstanding common stock and uses the equity method of accounting. Sim Company reported net income of \(\$ 702,000\) for 1999. On December 31, 1999, Sim Company paid a cash dividend of \(\$ 189,000\). In 2000, Sim Company incurred a net loss of \(\$
On February 1, 1999, Larkin Company acquired \(100 \%\) of the outstanding voting common stock of TRD Company for \(\$ 8,400,000\) cash. The stockholders' equity of the TRD Company consisted of common stock, \(\$ 6,720,000\), and retained earnings, \(\$ 1,680,000\). Prepare (a) the entry to record
Given the facts in Exercise 14-5, how much would be recorded as goodwill in each of the following instances? The same amount was paid, but the parent company acquired a-\section*{Exercise 14-4}a. \(90 \%\) interest.Prepare equity method entries for an investment (L.O. 1, 3)\section*{Exercise
Heidi Corporation acquired, for cash, \(80 \%\) 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, \(\$ 5,880,000\), and retained earnings, \(\$ 2,184,000\). The cost of
On January 1, 1998, Company J acquired \(85 \%\) of the outstanding voting common stock of Company K. On that date, Company K's stockholders' equity consisted of:Compute the difference between cost and book value in each of the following cases:a. Company J pays \(\$ 2,868,750\) cash for its
The January 1, 1999, stockholders' equity section of Saye Company's balance sheet follows:Ninety percent of Saye Company's outstanding voting common stock was acquired by Tim Company on January 1, 2000, for \(\$ 24,048,000\). Compute (a) the book value of the investment, \((b)\) the difference
Company S purchased \(90 \%\) of Company T's outstanding voting common stock on January 2, 1999. The investment is accounted for under the equity method. Company \(S\) paid \(\$ 2,790,000\) for its proportionate equity of \(\$ 2,430,000\). The difference was due to undervalued land owned by Company
On September 1, 1999, Ramsey Company purchased the following relatively long-term investments classified as available-for-sale securities:1. Two thousand shares of Lacey Company capital stock at \(\$ 439.20\) plus broker's commission of \(\$ 5,760\).2. One thousand shares of Membrow Company capital
Kress, Inc., purchased on July 2, 1999, 240 shares of Baker Company \(\$ 180\) par value common stock as a temporary investment at \(\$ 288\) per share, plus a broker's commission of \(\$ 432\).On July 15,1999 , a cash dividend of \(\$ 7.20\) per share was received. On September 15 , 1999, Baker
Prime Company acquired \(90 \%\) of the outstanding voting common stock of Orr Company on January 1, 1999, for \(\$ 7,560,000\) cash. Prime Company uses the equity method. During 1999, Orr reported \(\$ 1,512,000\) of net income and paid \(\$ 504,000\) in cash dividends. The stockholders' equity
Codd Company acquired \(70 \%\) of the outstanding voting common stock of Snow Company for \(\$ 8,568,000\) on January 1,1999 . The investment is accounted for under the equity method During the years 1999-2001, Snow Company reported the following:a. Prepare general journal entries to record the
Maple Company acquired all of the outstanding voting common stock of Dodd Company on January 2, 1999, for \(\$ 4,320,000\). On the date of acquisition, the balance sheets for the two companies were as follows:The management of Maple Company thinks that the Dodd Company's land is undervalued by \(\$
Refer back to Problem 14-5. Maple Company uses the equity method. Assume the following amounts are taken from the adjusted trial balances of Maple Company and Dodd Company on December 31, 1999There is no intercompany debt at the end of the year.Required Prepare a work sheet for consolidated
Using the work sheet from Problem 14-6, prepare the following items:a. Consolidated income statement for the year ended December 31, 1999.b. Consolidated statement of retained earnings for the year ended December 31, 1999 .c. Consolidated balance sheet for December 31, 1999 .
Supply the missing word(s) in the following statements:a. Accounting must reflect the national \(\qquad\) and \(\qquad\) environment in which it is practiced.b. Other accounting differences among nations stem from the legal or \(\qquad\) differences.c. Commonwealth nations tend to adopt \(\qquad\)
Prepare entries for trading securities (L.O. 1, 2)Paris Company acquired on July 15, 1999, 400 shares of Rome Company \(\$ 720\) par value capital stock at \(\$ 698.40\) per share plus a broker's commission of \(\$ 1,728\). On August 1, 1999, Paris Company received a cash dividend of \(\$ 8.64\)
On October 17, 1999, Strong Company purchased the following common stocks (all trading securities) at the indicated per share prices that included commissions:On December 31, 1999, the market prices per share of the above common stocks were \(\mathrm{X}\), \(\$ 223.20\); Y, \$136.80; and Z,
On January 1, 1999, Long Company acquired 80% of the outstanding voting common stock of Fall Company for $4,032,000 cash. Long Company uses the equity method. During 1999, Fall reported $672,000 of net income and paid $288,000 in dividends. The stockholders' equity section of the December 31, 1998,
Pearson Company acquired \(75 \%\) of the outstanding voting common stock of Frost Company for \(\$ 1,444,800\) cash on January 1,1999 . The investment is accounted for under the equity method. During 1999, 2000, and 2001, Frost Company reported the following:a. Prepare general journal entries to
Cord Company acquired \(100 \%\) of the outstanding voting common stock of Thorpe Company on January 2, 1999, for \(\$ 2,700,000\). At the end of business on the date of acquisition, the balance sheets for the two companies were as follows:The excess of cost over book value is attributable to the
Refer to Problem 14-5A. Cord Company uses the equity method. Assume the following are from the adjusted trial balances of Cord Company and Thorpe Company on December 31, 1999:There is no intercompany debt at the end of the year.Prepare a work sheet for consolidated financial statements on December
Using the work sheet from Problem 14-6A, prepare the following items:a. Consolidated income statement for the year ended December 31, 1999.b. Consolidated statement of retained earnings for the year ended December 31, 1999.c. Consolidated balance sheet for December 31, 1999 .
Select the best answer to each of the following questions:1. Methods used to account for transactions between companies in different nations when goods are received on one date and the invoice is paid on another date include:a. Time-of-transaction method.b. Time-of-settlement method.c. Current-rate
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 \(\$ 300,000\) less than the total cost of the portfolio. You ask the vice president for finance if the client expects to sell
On January 2, 1999, Brown Company acquired \(60 \%\) of the voting common stock of Cobb Company for \(\$ 720,000\) 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 has already collected
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 Inc.'s 1995 annual
Refer to the Reuters's annual report excerpt in "A Broader Perspective" on page 522. In writing, explain how the differences between the U.K. and the U.S. GAAP would affect Reuters's net income.
In teams of two or three students, select three companies you believe may be profitable shortterm 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 would have recorded
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 standard require?
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 they account for
\section*{Visit the following website for General Electric Company: http://www.ge.com}Pursue choices on the screen until you locate the consolidated balance sheet. You will probably go down some "false paths" to get to this financial statement, but you can get there. This experience is all part of
Visit the following website for the European Accounting Association: http:/www.bham.ac.uk/business/eaacong.html Browse around this site for any interesting information regarding the activities and programs of the organization. With calls for increased cooperation among nations in further
An unsecured bond is called a debenture bond.
Callable bonds may be called at the option of the holder of the bonds.
Favorable financial leverage results when borrowed funds are used to increase earnings per share of common stock.
If the market rate of interest exceeds the contract rate, the bonds are issued at a discount.
The straight-line method of amortization is the recommended method.
Harner Company issued \(\$ 100,000\) of \(12 \%\) bonds on March 1, 1999. The bonds are dated January 1, 1999, and were issued at 96 plus accrued interest. The entry to record the issuance would be:d. None of the above. a. Cash Discount on Bonds 98,000 Payable Bonds Payable 4,000 100,000 Bond
If the bonds in (1) had been issued at 104 , the entry to record the issuance would have been:d. None of the above. a. Cesh 104,000 Bonds Payable 100,000 Premium on Bonds Payable 4,000
On January 1, 1999, the Alvarez Company issued \(\$ 400,000\) face value of \(8 \%, 10\)-year bonds for cash of \(\$ 328,298\), a price to yield \(11 \%\). The bonds pay interest semiannually and mature on January 1, 2009. Using the effective interest rate method, the bond interest expense for the
If the straight-line amortization method had been used in (3), the interest expense for the first six months would have been:a. \(\$ 39,170\).b. \(\$ 32,000\).c. \(\$ 18,000\).d. \(\$ 19,585\).
Assume a company has net income of \(\$ 100,000\), income tax expense of \(\$ 40,000\), and interest expense of \(\$ 20,000\). The times interest earned ratio is:a. 5 timesb. 7 timesc. 8 timesd. 9 times
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?
What is a bond indenture? What parties are usually associated with it? Explain why.
Explain what is meant by the terms coupon, callable, convertible, and debenture.
What is meant by the term trading on the equity?
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?
Why might it be more accurate to describe a sinking fund as a bond redemption fund?
Why is the effective interest rate method of computing periodic interest expense considered theoretically preferable to the straight-line method?
Why would an investor whose intent is to hold bonds to maturity pay more for the bonds than their face value?
Of what use is the times interest earned ratio?
On September 30, 1999, Domingo's Construction Company issued \(\$ 120,000\) face value of \(12 \%, 10\)-year bonds dated August 31, 1999, 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 entries
On December 31, 1998, East Lansing Office Equipment Company issued \$1,600,000 face value of \(8 \%, 10\)-year bonds for cash of \(\$ 1,400,605\), a price to yield \(10 \%\). The bonds pay interest semiannually and mature on December 31,2008 .a. State which is higher, the market rate of interest or

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