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Accounting 23rd Edition Carl S. Warren - Solutions
=+stock offering, and 200,000 shares of common stock were privately sold to new investors at the stock’s par of $50.
=+SA 13-3 Issuing stock Chapter 13 Corporations: Organization, Stock Transactions, and Dividends 613 In preparing financial statements for 2010, Rafel Baltis and Emma Cavins, the controller for Biosciences Unlimited Inc., have the following conversation:Emma: Rafel, I’ve got a problem.Rafel:
=+Emma: So the auditor thinks that we should classify the additional issuance of $10 million as debt, not stock! And, if we put the $10 million on the balance sheet as debt, we will violate our other loan agreements with the banks. And, if these agreements are violated, the banks may call in all
=+1. Discuss the arguments for and against classifying the issuance of the $10 million of stock as debt.
=+2. What do you think might be a practical solution to this classification problem?The following stock exchange data for General Electric was taken from the Yahoo!Finance Web site on April 18, 2008:Gen Electric Co (NYSE: GE)Last Trade: 32.5815 Prev. Clos: 32.02 Trade Time: 11:03 AM ET 1y Target
=+a. If you owned 500 shares of GE, what amount would you receive as a quarterly dividend?
=+b. Compute the percentage increase in price from the Previous Close to the Last Trade.Round to two decimal places.
=+c. What is GE’s percentage change in market price from the 52 week low to the Previous Close on April 17, 2008? Round to one decimal place.
=+d. If you bought 500 shares of GE at the Last Trade price on April 18, 2008, how much would it cost, and who gets the money?
=+SA 13-4 Interpret stock exchange listing Rainbow Designs Inc. has paid quarterly cash dividends since 1997. These dividends have steadily increased from $0.05 per share to the latest dividend declaration of $0.40 per share. The board of directors would like to continue this trend and is hesitant
=+a. Pay monthly interest on the last day of the month.
=+b. Pay $120,000 of the principal each November 1, beginning in 2011.SA 13-5 Dividends➤614 Chapter 13 Corporations: Organization, Stock Transactions, and Dividends
=+c. Maintain a current ratio (current assets/current liabilities) of 2.
=+d. Maintain a minimum balance (a compensating balance) of $60,000 in its Washington National Bank account.
=+On December 31, 2010, $300,000 of the $1,200,000 loan had been disbursed in modernization of the retail stores and in expansion of the product line. Rainbow Designs Inc.’s balance sheet as of December 31, 2010, is shown below.Rainbow Designs Inc.Balance Sheet December 31, 2010 Assets Current
=+The board of directors is scheduled to meet January 5, 2011, to discuss the results of operations for 2010 and to consider the declaration of dividends for the fourth quarter of 2010. The chairman of the board has asked for your advice on the declaration of dividends.
=+1. What factors should the board consider in deciding whether to declare a cash dividend?
=+2. The board is considering the declaration of a stock dividend instead of a cash dividend. Discuss the issuance of a stock dividend from the point of view of(a) a stockholder and (b) the board of directors.
=+Chapter 13 Corporations: Organization, Stock Transactions, and Dividends 615 Select a public corporation you are familiar with or which interests you. Using the Internet, your school library, and other sources, develop a short (1 to 2 pages) profile of the corporation. Include in your profile the
=+In groups of three or four, discuss each corporate profile. Select one of the corporations, assuming that your group has $100,000 to invest in its stock. Summarize why your group selected the corporation it did and how financial accounting information may have affected your decision. Keep track
=+page provides a variety of information on the corporation and often includes the corporation’s financial statements. In addition, the New York Stock Exchange Web site(http://www.nyse.com) includes links to the home pages of many listed companies.
=+Financial statements can also be accessed using EDGAR, the electronic archives of financial statements filed with the Securities and Exchange Commission (SEC).SEC documents can also be retrieved using the EdgarScan™ service at
=+http://www.sec.gov/edgar/searchedgar/webusers.htm. To obtain annual report information, key in a company name in the appropriate space. Edgar will list the reports available to you for the company you’ve selected. Select the most recent annual report filing, identified as a 10-K or 10-K405.
=+2. Based on (1), identify a characteristic of companies with accounts receivable turnover ratios above 15.
=+1. Categorize each of the preceding companies as to whether its turnover ratio is likely to be above or below 15.
=+Caterpillar IBM Whirlpool Corporation
=+6 for an Internet Service Provider is unacceptable but might be excellent for a manufacturer of specialty milling equipment. A list of well-known companies follows.Alcoa Inc. The Coca-Cola Company Kroger AutoZone, Inc. Delta Air Lines Procter & Gamble Barnes & Noble, Inc. The Home Depot Wal-Mart
=+4. Given the nature of EarthLink’s operations, do you believe EarthLink’s accounts receivable turnover ratio would be higher or lower than a typical manufacturing company, such as Boeing or Kellogg Company? Explain.The accounts receivable turnover ratio will vary across companies, depending
=+3. What conclusions can be drawn from (1) and (2) regarding EarthLink’s efficiency in collecting receivables?
=+Assume that the accounts receivable (in thousands) were $30,733 at January 1, 2005.
=+SA 9-5 Accounts receivable turnover and days’sales in receivables Chapter 9 Receivables 439 Year Ending Dec. 31, 2006 Dec. 31, 2005 Net sales $1,301,267 $1,290,072 Accounts receivable at end of year 51,054 36,033
=+variety of services to its customers, including narrowband access, broadband or highspeed access, and Web hosting services. For two recent years, EarthLink reported the following (in thousands):
=+EarthLink, Inc., is a nationwide Internet Service Provider (ISP). EarthLink provides a
=+SA 9-4 Accounts receivable turnover and days’sales in receivables
=+3. What conclusions can be drawn from (1) and (2) regarding Apple’s efficiency in collecting receivables?
=+2. Compute the days’ sales in receivables at the end of 2006 and 2005.
=+1. Compute the accounts receivable turnover for 2006 and 2005. Round to one decimal place.
=+Assume that the accounts receivable (in millions) were $774 at the beginning of 2005.
=+net sales over the last five years are from sales of its Macs, Ipods, and related software and peripherals. For two recent fiscal years, Apple reported the following (in millions):Year Ending Sept. 30, 2006 Sept. 24, 2005 Net sales $19,315 $13,931 Accounts receivable at end of year 1,252 895
=+Apple Computer, Inc., designs, manufactures, and markets personal computers and related personal computing and communicating solutions for sale primarily to education, creative, consumer, and business customers. Substantially all of the company’s
=+SA 9-3 Accounts receivable turnover and days’sales in receivables
=+5. What assumption did we make about sales for the Circuit City and Best Buy ratio computations that might distort the two company ratios and therefore cause the ratios not to be comparable?
=+4. For its years ending in 2007 and 2006, Circuit City Stores, Inc., has an accounts receivable turnover of 30.7 and 50.6, respectively. Compare Best Buy’s efficiency in collecting receivables with that of Circuit City.
=+3. What conclusions can be drawn from (1) and (2) regarding Best Buy’s efficiency in collecting receivables?
=+1. Compute the accounts receivable turnover for 2007 and 2006. Round to one decimal place.
=+Assume that the accounts receivable (in millions) were $375 at the beginning of the year ending February 25, 2006.
=+Accounts receivable at end of year 548 506
=+Best Buy is a specialty retailer of consumer electronics, including personal computers, entertainment software, and appliances. Best Buy operates retail stores in addition to the Best Buy, Media Play, On Cue, and Magnolia Hi-Fi Web sites. For two recent years, Best Buy reported the following (in
=+b. Assume that after discussing (a) with Javier Cernao, he asked you what action might be taken to determine what the balance of Allowance for Doubtful Accounts should be at December 31, 2010, and what possible changes, if any, you might recommend in accounting for uncollectible receivables. How
=+SA 9-2 Estimate uncollectible accounts(continued)438 Chapter 9 Receivables
=+.a. Advise Javier Cernao as to whether the estimate of 1/4 of 1% of credit sales appears reasonable.
=+(b) the accounts written off for each of the four years.
=+1. Determine the amount of (a) the addition to Allowance for Doubtful Accounts and
=+Javier Cernao, president of Halsey Co., is concerned that the method used to account for and write off uncollectible receivables is unsatisfactory. He has asked for your advice in the analysis of past operations in this area and for recommendations for change.
=+/4 of 1% of credit sales, which is the rate reported as the average for the industry. Credit sales and the year-end credit balances in Allowance for Doubtful Accounts for the past four years are as follows:Allowance for Year Credit Sales Doubtful Accounts 2007 $6,120,000 $ 6,390 2008 6,300,000
=+SA 9-1 Ethics and professional conduct in business For several years, Halsey Co.’s sales have been on a “cash only” basis. On January 1, 2007, however, Halsey Co. began offering credit on terms of n/30. The amount of the adjusting entry to record the estimated uncollectible receivables at
=+Discuss whether Mirna is behaving in a professional manner.
=+PR 9-6B Sales and notes receivable transactions obj. 6 Special Activities Mirna Gaymer, vice president of operations for Rocky Mountain County Bank, has instructed the bank’s computer programmer to use a 365-day year to compute interest on depository accounts (payables). Mirna also instructed
=+20. Received from Lindenfield Co. the amount of the invoice of August 10, less 1% discount.Instructions Journalize the transactions.
=+June 12. Received from Centennial Co. the amount owed on the dishonored note, plus interest for 30 days at 12% computed on the maturity value of the note.July 9. Received from Jas Caudel the amount due on his note of April 10.Aug.10. Sold merchandise on account to Lindenfield Co., $13,600. The
=+May 5. Received from Periman & Co. the amount due on the note of March 6.13. Centennial Co. dishonored its note dated March 14.
=+Apr. 10. Received the interest due from Jas Caudel and a new 90-day, 10% note as a renewal of the loan of January 10. (Record both the debit and the credit to the notes receivable account.)
=+14. Accepted a 60-day, 12% note for $30,000 from Centennial Co. on account.
=+Mar. 6. Accepted a 60-day, 6% note for $28,000 from Periman & Co. on account.
=+13. Sold merchandise on account to Centennial Co., $30,000. The cost of merchandise sold was $17,600.
=+PR 9-5B Notes receivable entries obj. 6 Chapter 9 Receivables 437 The following were selected from among the transactions completed by Mair Co. during the current year. Mair Co. sells and installs home and business security systems.Jan. 10. Loaned $12,000 cash to Jas Caudel, receiving a 90-day,
=+Dec. 5. Received $24,140 on note of November 5.30. Received $15,125 on note of November 30.Instructions Journalize entries to record the transactions.
=+PR 9-4B Details of notes receivable and related entries obj. 6✔ 1. Note 2: Due date, July 26;Interest due at maturity, $185 The following data relate to notes receivable and interest for Optic Co., a cable manufacturer and supplier. (All notes are dated as of the day they are received.)June
=+4. Journalize the entries to record the receipt of the amounts due on Notes (5) and (6)in January.
=+Hauser Co. wholesales bathroom fixtures. During the current fiscal year, Hauser Co.received the following notes:Date Face Amount Term Interest Rate 1. Apr. 4 $30,000 60 days 8%2. June 26 18,500 30 days 12 3. July 5 16,200 120 days 6 4. Oct. 31 36,000 60 days 9 5. Nov. 23 21,000 60 days 6 6. Dec.
=+⁄4% of sales appear to be reasonably close to the actual experience with uncollectible accounts originating during the first two years?Explain.
=+2. Experience during the first four years of operations indicated that the receivables were either collected within two years or had to be written off as uncollectible. Does the estimate of 3
=+PR 9-3B Compare two methods of accounting for uncollectible receivables objs. 3, 4, 5✔ 1. Year 4: Balance of allowance account, end of year,$13,700 436 Chapter 9 Receivables Year of Origin of Accounts Receivable Written Uncollectible Accounts Off as Uncollectible Year Sales Written off 1st
=+Allowance for Doubtful Accounts would have been at the end of each year. The following data have been obtained from the accounts:34
=+4. Assume that the allowance for doubtful accounts for Cutthroat Company has a debit balance of $1,370 before adjustment on December 31, 2009. Journalize the adjusting entry for uncollectible accounts.1 23 45 30 31 Alder Fishery Brown Trout Zug Bug Sports Subtotals 15,000 5,500 2,900 850,000
=+The following accounts were unintentionally omitted from the aging schedule:Customer Due Date Balance AAA Sports & Flies June 14, 2009 $2,850 Blackmon Flies Aug. 30, 2009 1,200 Charlie’s Fish Co. Sept. 30, 2009 1,800 Firehole Sports Oct. 17, 2009 600 Green River Sports Nov. 7, 2009 950 Smith
=+Cutthroat Company supplies flies and fishing gear to sporting goods stores and outfitters throughout the western United States. The accounts receivable clerk for Cutthroat prepared the following partially completed aging of receivables schedule as of the end of business on December 31, 2009:
=+PR 9-1B Entries related to uncollectible accounts obj. 4✔ 3. $750,375 Chapter 9 Receivables 435
=+2. Journalize the transactions. Post each entry that affects the following selected T accounts and determine the new balances:Allowance for Doubtful Accounts Bad Debt Expense
=+1. Record the January 1 credit balance of $15,500 in a T account for Allowance for Doubtful Accounts.
=+31. Based on an analysis of the $768,375 of accounts receivable, it was estimated that $18,000 will be uncollectible. Journalized the adjusting entry.Instructions
=+Dec. 31. Wrote off the following accounts as uncollectible (compound entry): Siena Co., $2,400; Kommers Co., $1,800; Butte Distributors, $6,000; Ed Ballantyne,$1,750.
=+Nov. 20. Reinstated the account of Pexis Co., which had been written off in the preceding year as uncollectible. Journalized the receipt of $6,140 cash in full payment of the account.
=+Aug. 9. Wrote off the $3,600 balance owed by Tux Time Co., which has no assets.
=+May 3. Reinstated the account of Irma Alonso, which had been written off in the preceding year as uncollectible. Journalized the receipt of $1,725 cash in full payment of Alonso’s account.
=+The following transactions were completed by Interia Management Company during the current fiscal year ended December 31:Feb. 24. Received 40% of the $18,000 balance owed by Broudy Co., a bankrupt business, and wrote off the remainder as uncollectible.
=+26. Received from Rainbow Co. the amount owed on the dishonored note, plus interest for 15 days at 12% computed on the maturity value of the note.Instructions Journalize the transactions.Problems Series B
=+Sept.13. Received from Michele Hobson the amount due on her note of July 15.13. Sold merchandise on account to Rainbow Co., $20,000. The cost of merchandise sold was $11,500.Oct. 12. Accepted a 60-day, 6% note for $20,000 from Rainbow Co. on account.Dec. 11. Rainbow Co. dishonored the note dated
=+July 15. Received the interest due from Michele Hobson and a new 60-day, 9% note as a renewal of the loan of June 15. (Record both the debit and the credit to the notes receivable account.)
=+June 15. Loaned $18,000 cash to Michele Hobson, receiving a 30-day, 6% note.20. Received from Foyers the amount due on the invoice of June 10, less 2%discount.
=+434 Chapter 9 Receivables
=+4. Journalize the entries to record the receipt of the amounts due on Notes (5) and(6) in January and February.
=+3. Journalize the adjusting entry to record the accrued interest on Notes (5) and (6) on December 31.
=+2. Journalize the entry to record the dishonor of Note (3) on its due date.
=+1. Determine for each note (a) the due date and (b) the amount of interest due at maturity, identifying each note by number.
=+PR 9-6A Sales and notes receivable transactions obj. 6 Boutique Ads Co. produces advertising videos. During the last six months of the current fiscal year, Boutique Ads Co. received the following notes:Date Face Amount Term Interest Rate 1. May 9 $19,200 45 days 9%2. July 15 11,250 60 days 8 3.
=+June 10. Sold merchandise on account to Foyers for $13,600. The cost of merchandise sold was $8,200.
=+May 2. Received from Wilding Co. the amount due on the note of March 3.
=+Mar. 3. Accepted a 60-day, 8% note for $30,750 from Wilding Co. on account.
=+PR 9-5A Notes receivable entries obj. 6 The following were selected from among the transactions completed during the current year by Bonita Co., an appliance wholesale company:Jan. 20. Sold merchandise on account to Wilding Co., $30,750. The cost of merchandise sold was $18,600.
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