Jorge Corporation issued $100,000 par value, 6%, 4-year bonds (i.e., there were 100 of $1,000 par value bonds in the issue). Interest is payable semiannually each January 1 and July 1 with the first interest payment due at the end of the period on July 1. Determine the issue price of the bonds if the market rate of interest is 8%.
> Sterzel Company declared its quarterly cash dividend on March 31 of the current year. The dividend of $.75 per share was to be paid on May 1 to the shareholders of record as of April 18. The company reported 120,000 shares issued with 15,500 shares held
> Under the indirect method, do firms subtract bond discount amortization from net income to determine operating cash flows?
> What approach is used in preparing the operating activities, investing activities, and financing activities sections of the statement of cash flows?
> Use the same information provided in E17-14. Now assume that in Year 4, taxable income is $280,000. This amount is higher than anticipated by management, and they now believe that they will be able to utilize the entire NOL carryforward. Required: a.
> Under the indirect method, do companies using IFRS begin the operating section with net income?
> Does the accounting equation explain the change in cash during the period?
> What is the cash flow statement?
> Do accounting errors that self-correct within two accounting periods require correcting entries?
> When does a change in reporting entity occur?
> What type of change would a change from LIFO to FIFO be considered?
> How do firms account for a change in depreciation method?
> What are the direct and indirect effects of changes in accounting principle on the financial statements?
> Using the information provided in BE15-10, assume that Chief Company retired all of the shares on July 5 (rather than holding shares in the treasury and reissuing them). Prepare the journal entries to record the acquisition and retirement of the treasury
> How do firms account for changes in accounting estimates and changes in accounting principles?
> Aurora Incorporated provided the following information Aurora reported no book-tax differences and elected the carryback/carryforward option for its Year 3 loss. Future tax rates are not expected to change. Required: a. Prepare any necessary journal
> Explain the two approaches that firms use to report accounting changes.
> How do firms report accounting changes under the retrospective method?
> Does a firm need to correct an error that misclassifies equipment as inventory if total assets are correct?
> Are accounting changes permitted in financial statements?
> When is a potentially dilutive security antidilutive?
> When can firms use the treasury stock method?
> Does the after-tax interest add-back for convertible debt require the amount of the coupon interest paid for the period of the earnings per share computation?
> Does a company with dilutive convertible debt and dilutive convertible preferred shares have to add the after-tax interest and after-tax preferred dividends back to net income in the numerator computation of diluted EPS?
> Can diluted earnings per share on bottom-line net income or net loss exceed basic earnings per share?
> On March 15, Chief Company acquired 20,000 shares of its own $2 par value common shares at a cost of $17 per share. Chief had originally issued the shares at $12 per share. On July 5, Chief sold 7,000 of the shares in the open market at $20 per share. On
> Loggins Lumber Company experienced net losses during the first 2 years of its operations. Year 3 was the company’s first profitable year. Loggins uses the same accounting methods for financial reporting and its tax returns. The company
> If all potentially dilutive securities are dilutive (as opposed to antidilutive), will diluted earnings per share be the same whether there are actual or hypothetical conversions of potentially dilutive securities?
> Does the if-converted assumption apply only to diluted earnings per share?
> Do firms adjust the numerator of the EPS ratio for preferred dividends if the dividends are declared?
> Do earnings per share disclosures include a reconciliation of the numbers used in the computation of EPS to the information provided in the financial statements?
> Is an entity required to present earnings per share on income from continuing operations and earning per share on discontinued operations on the face of its financial statements?
> How do financial statement analysts use earnings per share information?
> Do corporations report the projected benefit obligation and the plan assets as individual accounts on the sponsor corporation’s balance sheet?
> Does a company report the funded status of the defined-benefit plan as calculated by an actuary on the financial statement?
> The corridor method requires computing the amortization of net actuarial gains and losses under the straightline method. Will the amortization be the same each year?
> Does the going-concern concept justify the use of the projected benefit obligation in all pension calculations?
> Phlash Photo Labs, Ltd. provided you the following information for the 3 years ended December 31. Required: a. Assuming no book-tax differences and no uncertainty regarding the realization of the tax benefits of the net operating loss carryforward, prep
> ABC Toy Company earned $357 million of net income in 2019 and paid $45 million in dividends. It issued no new stock. Complete the stockholders’ equity section for ABC Toy Company:
> Does the employee always absorb the total risk of loss on pension plan assets?
> When accounting for employee stock options, will a reduction of compensation expense or compensation “income” occur in future periods?
> Do companies with equity-based compensation plans make adjustments for changes in the market price of the stock?
> How do companies account for stock-based compensation?
> Does aggregating the five components of pension cost always results in a reduction in income?
> What is the allocation period used to expense stock-based compensation?
> How does a lessee separate lease and nonlease components?
> What components are included in a lease contract?
> How is the right-of-use asset measured?
> Evergreen Waste Company provides weekly trash collection services to small companies. Evergreen collected a $1,000 deposit from each of 12 new customers for large trash dumpsters. The cost of each dumpster is $700. The company uses a perpetual inventory
> Over what time period does the lessee amortize the leased asset transferred by the lessor?
> How does a lease offer business and financial flexibility for the lessee?
> What are typical terms and provisions in a lease contract?
> What types of payments are included in variable lease payments? How are variable lease payments treated in accounting for leases?
> In a direct financing lease, does a lessor always report selling profit or loss on the sale of the leased asset at the lease commencement date? Explain
> In a sales-type lease, does a lessor always report a selling profit or loss on the sale of the leased asset at the lease commencement date? Explain.
> How does the lessor measure the net investment in the lease for a lease classified as a sales-type lease?
> Who bears the risk of obsolescence in a lease transaction?
> What are the lessee’s accounting and reporting requirements for the subsequent measurement of the lease transaction if a lease is classified as a finance lease?
> Tank Top Menswear, Ltd. reported net plant and equipment of $1,600,000. These assets cost $2,500,000 with accumulated depreciation taken to date of $900,000. Based on recently assessed negative evidence, Tank Top’s management concluded that its plant ass
> What are the lessee’s accounting and reporting requirements for the initial measurement of the lease transaction if a lease is classified as a finance lease?
> What is the accounting treatment for initial direct costs the lessor pays?
> Fill in the missing items for each of the cases below:
> What are the lessee’s accounting and reporting requirements for the subsequent measurement of the lease transaction if a lease is classified as an operating lease?
> What are the lessee’s accounting and reporting requirements for the initial measurement of the lease transaction if a lease is classified as an operating lease?
> What is the lessee’s short-term lease policy election?
> How does a lessee measure the lease liability?
> What types of expenditures are included in initial direct costs paid by the lessee?
> What is reported by a lessee under a lease when the lessee makes the short-term lease policy election?
> What does the lessor report on the income statement under an operating lease?
> Turnabout Enterprises provided the following information regarding book-tax differences for its first year of operations: Installment sales are a normal part of Turnabout’s operations. The depreciation expense is related to a building
> Dentquity Corporation has the following capital structure at the beginning of the current year: Required: a. Prepare the journal entries (including closing entries) to record each of the following transactions affecting shareholders’ e
> Is it advantageous to the lessee that the lessor bears the risk of the asset becoming obsolete? Explain.
> Does the choice of discount rate (i.e., the lessee’s incremental borrowing rate versus the lessor’s implicit rate) materially affect lease valuation for the lessee?
> What discount rate does the lessee use to determine the present value of the lease payments? What is the rationale behind this requirement?
> Match each term with its definition or explanation. Terms can be used more than once
> Local Craft Designs, Inc. reported goodwill at $600,000 related to its Central Avenue Division. The fair value of Central Avenue is $2,500,000. The carrying value of Central Avenue’s net assets, excluding goodwill, is reported at $2,100,000 and appraised
> How does the probability of the collection of the lease payments and guaranteed residual value affect the net investment in lease by the lessor?
> How does a guaranteed residual value affect the lease accounting for the lessor and the lessee?
> What is the difference in the lessee’s lease capitalization criteria under IFRS and U.S. GAAP?
> Can the lessor account for a lease either as an operating, direct financing, or a sales-type lease at its discrtion? Explain
> What elements are included in the total lease payments?
> Flex Mirrors, Ltd. offers a 3-year warranty on all its products. In Year 1, the company reported income before warranty expense of $600,000 and estimated that warranty repairs would cost the company $115,000 over the 3-year period. Actual repairs for the
> What are the criteria for a lessee to report a finance lease?
> Does a lessee have an option not to separate lease and nonlease components?
> How does a lessor separate lease and nonlease components?
> Does the lessee become the owner of the equipment when entering into an agreement to lease a piece of equipment? Explain.
> Does the requirement that a firm must assess its deferred tax assets every period for realizability and adjust the valuation allowance as necessary create volatility in the entity’s effective tax rate? Explain.
> Ironbound, Inc. borrows $150,000 by issuing a 12%, 4-year note on January 1, 2016. Ironbound must make payments of principal and interest every 3 months, beginning March 31, 2016. The note will be fully paid at maturity on December 31, 2019. The company’
> When can firms recognize net deferred tax assets on the balance sheet?
> When do deferred tax liabilities occur?
> How does the balance sheet approach measure deferred taxes?
> How are deferred tax assets and deferred tax liabilities created?
> Farris Casinos recently acquired a newly built hotel and casino in Atlantic City. The cost of the complex was $6,000,000 with a 6-year useful life and no residual value expected. Farris depreciates its buildings using the straight-line method for financi
> When do permanent differences arise?
> Will permanent differences cause the effective tax rate to be lower than the statutory rate?
> When will income tax expense and income taxes payable be equal?
> Are extensive disclosures required for deferred taxes?
> Do U.S. GAAP and IFRS classify deferred tax accounts in the same manner?
> How do firms classify deferred tax accounts?
> For each case, provide the missing information. Assume that payments occur at the end of each period.
> Do U.S. GAAP and IFRS have similar approaches to accounting for tax contingencies?
