Identify the following as either an advantage (A) or a disadvantage (D) of bond financing. ______ a. bonds do not affect owner control. ______ b. A company earns a lower return with borrowed funds than it pays in interest. ______ c. A company earns a higher return with borrowed funds than it pays in interest. ______ d. bonds require payment of periodic interest. ______ e. Interest on bonds is tax deductible. ______ f. bonds require payment of par value at maturity.
> Does the balance in the Accumulated Depreciation— Machinery account represent funds to replace the machinery when it wears out? If not, what does it represent?
> Use the following balance sheets and income statement to answer this. Required Use the indirect method to prepare the cash provided or used from operating activities section only of the statement of cash flows for this company. CRUZ, INC. Comparat
> During the current year, Reed Consulting Group acquired long-term available-for-sale securities at a $70,000 cost. At its December 31 year-end, these securities had a fair value of $58,000. This is the first and only time the company purchased such secur
> Hiker Company completes the following transactions during the current year. Prepare the May 9 and June 2 journal entries and the December 31 adjusting entry. This is the first and only time the company purchased such securities. May 9 Purchases 200 share
> Journ Co. purchased short-term investments in available-for-sale securities at a cost of $50,000 on November 25, 2015. At December 31, 2015, these securities had a fair value of $47,000. This is the first and only time the company has purchased such secu
> Kitty Company began operations in 2014 and maintains short-term investments in trading securities. The year-end cost and fair values for its portfolio of these investments follow. Prepare journal entries to record each December 31 year-end fair value adj
> The Carrefour Group reports the following description of its trading securities (titled “financial assets reported at fair value in the income statement”). Carrefour’s financial statements report &a
> Return on total assets can be separated into two important components. 1. Write the formula to separate the return on total assets into its two basic components. 2. Explain how these components of the return on total assets are helpful to financial state
> Complete the following descriptions by filling in the blanks. 1. Equity securities giving an investor significant influence are accounted for using the ______ ______. 2. Available-for-sale debt securities are reported on the balance sheet at ______ _____
> Montero Co. holds 100,000 common shares (40%) of ORD Corp. as a long-term investment. ORD Corp. paid a $100,000 dividend on November 1, 2015, and reported a net income of $700,000 for 2015. Prepare Montero’s entries to record (a) the receipt of the divi
> On May 20, 2015, Montero Co. paid $1,000,000 to acquire 25,000 common shares (10%) of ORD Corp. as a long-term investment. On August 5, 2016, Montero sold one-half of these shares for $625,000. What valuation method should be used to account for this sto
> Why does the Bad Debts Expense account usually not have the same adjusted balance as the Allowance for Doubtful Accounts?
> Enviro Company issues 8%, 10-year bonds with a par value of $250,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 5%, which implies a selling price of 123 3⁄8. The straight-line method is used to allocate
> Sylvestor Company issues 10%, five-year bonds, on December 31, 2014, with a par value of $100,000 and semiannual interest payments. Use the following bond amortization table and prepare journal entries to record (a) the issuance of bonds on December 31,
> Enviro Company issues 8%, 10-year bonds with a par value of $250,000 and semiannual interest payments. On the issue date, the annual market rate for these bonds is 10%, which implies a selling price of 87 1⁄2. The straight-line method is used to allocate
> Using the bond details in QS 14-4, confirm that the bonds’ selling price is approximately correct (within $100). Use the present value tables B.1 and B.3 in Appendix B. Bond Details from QS 14-4: Garcia Company issues 10%, 15-year bond
> Using the bond details in QS 14-2, confirm that the bonds’ selling price is approximately correct (within$100). Use the present value tables B.1 and B.3 in Appendix B. Bond Details from QS 14-2: Enviro Company issues 8%, 10-year bonds
> Refer to the information in QS 14-19 for Vodafone Group Plc. The following price quotes (from Yahoo! Finance Bond Center) relate to its bonds payable. The price quote indicates that the 4.625% bonds have a market price of 111.67 (111.67% of par value), r
> Vodafone Group Plc reports the following information among its bonds payable as of March 31, 2013 (pounds in millions). a. What is the par value of the 4.625% bond issuance? What is its book (carrying) value? b. Was the 4.625% bond sold at a discount o
> Assume that a company purchases land for $1,000,000, paying $400,000 cash and borrowing the remainder with a long-term note payable. How should this transaction be reported on a statement of cash flows?
> What are some investing activities reported on the statement of cash flows?
> Refer to Samsung’s statement of cash flows in Appendix A. What investing activities result in cash outflows for the year ended December 31, 2013? List items and amounts. Samsung’s Statement of Cash Flow from Appendix
> Explain why writing off a bad debt against the Allowance for Doubtful Accounts does not reduce the estimated realizable value of a company’s accounts receivable.
> Refer to Google’s statement of cash flows in Appendix A. What are its cash flows from financing activities for the year ended December 31, 2013? List the items and amounts. Google’s Statement of Cash Flow from Appendi
> Refer to Apple’s statement of cash flows in Appendix A. (a) Which method is used to compute its net cash provided by operating activities? (b) Its balance sheet shows an increase in accounts (trade) receivable from September 29, 2012,
> If a company reports positive net income for the year, can it also show a net cash outflow from operating activities? Explain.
> For investments in available-for-sale securities, how are unrealized (holding) gains and losses reported?
> Under what conditions should investments be classified as current assets? As long-term assets?
> Identify the three classes of non-influential and two classes of influential investments in securities.
> Assume a U.S. company makes a credit sale to a foreign customer that is required to make payment in its foreign currency. In the current period, the exchange rate is $1.40 on the date of the sale and $1.30 on the date the customer pays the receivable. Wi
> Why does a company that issues bonds between interest dates collect accrued interest from the bonds’ purchasers?
> Does the straight-line or effective interest method produce an interest expense allocation that yields a constant rate of interest over a bond’s life? Explain.
> What are the contract rate and the market rate for bonds?
> Why might a business prefer a note receivable to an account receivable?
> What is a bond indenture? What provisions are usually included in it?
> What is the advantage of issuing bonds instead of obtaining financing from the company’s owners?
> Describe the two basic types of pension plans.
> Compare and contrast an operating lease with a capital lease.
> What obligation does an entrepreneur (owner) have to investors that purchase bonds to finance the business?
> Describe the debt-to-equity ratio and explain how creditors and owners would use this ratio to evaluate a company’s risk.
> What is the difference between the market value per share and the par value per share?
> List the general rights of common stockholders.
> How is book value per share computed for a corporation with no preferred stock? What is the main limitation of using book value per share to value a corporation?
> What is the difference between a stock dividend and a stock split?
> Why are incidental costs sometimes ignored in inventory costing? Under what accounting constraint is this permitted?
> How does declaring a stock dividend affect the corporation’s assets, liabilities, and total equity? What are the effects of the eventual distribution of that stock?
> Identify and explain the importance of the three dates relevant to corporate dividends.
> Enter the letter of the description A through H that best fits each term or phrase 1 through 8. A. Records and tracks the bondholders’ names. B. Is unsecured; backed only by the issuer’s credit standing. C. Has varying maturity dates for amounts owed. D.
> On January 1, 2015, the $2,000,000 par value bonds of Spitz Company with a carrying value of $2,000,000 are converted to 1,000,000 shares of $1.00 par value common stock. Record the entry for the conversion of the bonds.
> Which of the following statements are true regarding dividends? ______ 1. Cash and stock dividends reduce retained earnings. ______ 2. Dividends payable is recorded at the time a cash dividend is declared. ______ 3. The date of record refers to the date
> Costs of $5,000 were incurred to acquire goods and make them ready for sale. The goods were shipped to the buyer (FOB shipping point) for a cost of $200. Additional necessary costs of $400 were incurred to acquire the goods. What is the buyer’s total cos
> Identify the inventory costing method best described by each of the following separate statements. Assume a period of increasing costs. ______ 1. Yields a balance sheet inventory amount often markedly less than its replacement cost. ______ 2. Results in
> Answer each of the following questions related to international accounting standards. a. Explain how the accounting for merchandise purchases and sales is different between accounting under IFRS versus U.S. GAAP. b. Income statements prepared under IFRS
> After all partnership assets have been converted to cash and all liabilities paid, the remaining cash should equal the sum of the balances of the partners’ capital accounts. Why?
> Listed below are various transactions that a company incurred during the current year. Indicate the impact on total stockholders’ equity for each scenario. Specifically state whether stockholders’ equity would “Increase,” “Decrease,” or have “No Effect”
> Of the following statements, which are true for the corporate form of organization? ______ 1. Ownership rights cannot be easily transferred. ______ 2. Owners have unlimited liability for corporate debts. ______ 3. Capital is more easily accumulated than
> Identify whether each description best applies to a periodic or a perpetual inventory system. ______ a. Updates the inventory account only at period-end. ______ b. Requires an adjusting entry to record inventory shrinkage. ______ c. Markedly increased in
> Answer each of the following related to international accounting standards. a. In general, how similar or different are the definitions and characteristics of current liabilities between IFRS and U.S. GAAP? b. Companies reporting under IFRS often referen
> Fancher organized a limited partnership and is the only general partner. Carley invested $20,000 in the partnership and was admitted as a limited partner with the understanding that she would receive 10% of the profits. After two unprofitable years, the
> The following legal claims exist for Huprey Co. Identify the accounting treatment for each claim as either (a) a liability that is recorded or (b) an item described in notes to its financial statements. 1. Huprey (defendant) estimates that a pending law
> Which of the following items are normally classified as current liabilities for a company that has a 15-month operating cycle? ______ 1. Portion of long-term note due in 15 months. ______ 2. Note payable maturing in 2 years. ______ 3. Note payable due
> For each item below indicate whether the statement describes a multiple-step income statement or a single-step income statement. a. Multiple-step income statement b. Single-step income statement 1. Shows detailed computations of net sales and other cost
> Enter the letter for each term in the blank space beside the definition that it most closely matches. A. Sales discount B. Credit period C. Discount period D. FOB destination E. FOB shipping point F. Gross profit I. Cash discount G. Merchandise inven
> On June 3, a company borrows $200,000 cash by giving its bank a 90-day, interest-bearing note. On the statement of cash flows, where should this be reported?
> If a partnership contract does not state the period of time the partnership is to exist, when does the partnership end?
> Refer to Samsung’s 2013 statement of cash flows in Appendix A. List its cash flows from operating activities, investing activities, and financing activities. Samsung’s Statement of Cash Flow from Appendix A: Sams
> Under what circumstances are long-term investments in debt securities reported at cost and adjusted for amortization of any difference between cost and maturity value?
> On a balance sheet, what valuation must be reported for debt securities classified as available-for-sale?
> If a company purchases its only long-term investments in available-for-sale debt securities this period and their fair value is below cost at the balance sheet date, what entry is required to recognize this unrealized loss?
> If a short-term investment in available-for-sale securities costs $10,000 and is sold for $12,000, how should the difference between these two amounts be recorded?
> On a balance sheet, what valuation must be reported for short-term investments in trading securities?
> Refer to the income statement of Samsung in Appendix A. How can you tell that it uses the consolidated method of accounting? Income Statement of Samsung from Appendix A: Samsung Electronics Co, Ltd. and its subsidiaries CONSOLIDATED STATEMENTS OF
> Refer to Google’s statement of comprehensive income. What was the amount of its 2013 change in net unrealized gains for its AFS investments? Google’s Statement of Comprehensive Income: Google Inc. CONSOLIDATED ST
> Refer to Apple’s statement of comprehensive income in Appendix A. What is the amount of foreign currency translation adjustment for the year ended September 28, 2013? Is this adjustment an unrealized gain or an unrealized loss? Apple&a
> If a U.S. company makes a credit sale to a foreign customer required to make payment in U.S. dollars, can the U.S. company have an exchange gain or loss on this sale?
> What is an employer’s unemployment merit rating? How are these ratings assigned to employers?
> What are two major challenges in accounting for international operations?
> Under what circumstances does a company prepare consolidated financial statements?
> In accounting for investments in equity securities, when should the equity method be used?
> Under what two conditions should investments be classified as current assets?
> What factors affect the market rates for bonds?
> What are the duties of a trustee for bondholders?
> What is the main difference between a bond and a share of stock?
> When can a lease create both an asset and a liability for the lessee?
> Refer to the statements for Google in Appendix A. For the year ended December 31, 2013, what is its debt-to-equity ratio? What does this ratio tell us? Google’s Financial Statements from Appendix A: Google Inc. CONSOLIDATE
> Refer to the statement of cash flows for Samsung in Appendix A. For the year ended December 31, 2013, what was the amount for repayment of long-term borrowings and debentures? Samsung’s Statement of Cash Flow from Appendix A: Sams
> Refer to Samsung’s recent balance sheet in Appendix A. What current liabilities related to income taxes are on its balance sheet? Explain the meaning of each income tax account identified. Samsung’s Balance Sheet from Appendix A: / /
> By what amount did Samsung’s long-term borrowings increase or decrease in 2013? Samsung’s Financial Statements from Appendix A: Samsung Electronics Co., Ltd. and its subsidiaries CONSOLIDATED STATEMENTS OF FI
> Refer to Apple’s annual report in Appendix A. Is there any indication that Apple has issued long-term debt? Apple’s Balance Sheet from Appendix A: Apple Inc. CONSOLIDATED BALANCE SHEETS (In millions, except numbe
> What is the issue price of a $2,000 bond sold at 98 1⁄4? What is the issue price of a $6,000 bond sold at 101 1⁄2?
> If you know the par value of bonds, the contract rate, and the market rate, how do you compute the bonds’ price?
> What is the main difference between notes payable and bonds payable?
> Why would an investor find convertible preferred stock attractive?
> What is the difference between the par value and the call price of a share of preferred stock?
> What is the preemptive right of common stockholders?
> What is the difference between authorized shares and outstanding shares?
> Who is responsible for directing a corporation’s affairs?
> Suppose that a company has a facility located where disastrous weather conditions often occur. Should it report a probable loss from a future disaster as a liability on its balance sheet? Explain.
> Refer to the financial statements for Samsung in Appendix A. How much were its cash payments for treasury stock purchases for the year ended December 31, 2013? Samsung’s Financial Statements from Appendix A: Samsung Electronic
> Refer to the 2013 balance sheet for Google in Appendix A. What is the par value per share of its preferred stock? Suggest a rationale for the amount of par value it assigned. Google’s Balance Sheet from Appendix A: Google Inc. CON
