Question: On January 2, 2012, Jones Company purchases

> In 2012, Buraka Enterprises issued, at par, 75 $1,000, 8% bonds, each convertible into 100 shares of common stock. Buraka had revenues of $17,500 and expenses other than interest and taxes of $8,400 for 2013. (Assume that the tax rate is 40%.) Throughout

> At January 1, 2012, Cameron Company’s outstanding shares included the following. 280,000 shares of $50 par value, 7% cumulative preferred stock 800,000 shares of $1 par value common stock Net income for 2012 was $2,830,000. No cash dividends were declare

> On January 1, 2012, Bailey Industries had stock outstanding as follows. 6% Cumulative preferred stock, $100 par value, issued and outstanding 10,000 shares …………….……………………….. $1,000,000 Common stock, $10 par value, issued and outstanding 200,000 shares ……

> A portion of the statement of income and retained earnings of Pierson Inc. for the current year follows. Note 1. During the year, Pierson Inc. suffered a major casualty loss of $1,340,000 after applicable income tax reduction of $1,200,000. At the end

> Kendall Inc. presented the following data. Net income ……………………………………..…………………. $2,200,000 Preferred stock: 50,000 shares outstanding, $100 par, 8% cumulative, not convertible ………………. 5,000,000 Common stock: Shares outstanding 1/1 ……………………. 600,000 Issued

> Briefly explain the accounting requirements for stock compensation plans under GAAP.

> Ott Company had 210,000 shares of common stock outstanding on December 31, 2012. During the year 2013, the company issued 8,000 shares on May 1 and retired 14,000 shares on October 31. For the year 2013, Ott Company reported net income of $229,690 after

> On January 1, 2012, Chang Corp. had 480,000 shares of common stock outstanding. During 2012, it had the following transactions that affected the Common Stock account. February 1 ……………………………. Issued 120,000 shares March 1 ……………………….. Issued a 20% stock di

> Gogean Inc. uses a calendar year for financial reporting. The company is authorized to issue 9,000,000 shares of $10 par common stock. At no time has Gogean issued any potentially dilutive securities. Listed below is a summary of Gogean’s common stock ac

> Tweedie Company issues 10,000 shares of restricted stock to its CFO, Mary Tokar, on January 1, 2012. The stock has a fair value of $500,000 on this date. The service period related to this restricted stock is 5 years. Vesting occurs if Tokar stays with t

> Ravonette Corporation issued 300 shares of $10 par value common stock and 100 shares of $50 par value preferred stock for a lump sum of $13,500. The common stock has a market price of $20 per share, and the preferred stock has a market price of $90 per s

> Derrick Company issues 4,000 shares of restricted stock to its CFO, Dane Yaping, on January 1, 2012. The stock has a fair value of $120,000 on this date. The service period related to this restricted stock is 4 years. Vesting occurs if Yaping stays with

> On January 1, 2011, Scooby Corporation granted 10,000 options to key executives. Each option allows the executive to purchase one share of Scooby’s $5 par value common stock at a price of $20 per share. The options were exercisable within a 2-year period

> On January 1, 2012, Magilla Inc. granted stock options to officers and key employees for the purchase of 20,000 shares of the company’s $10 par common stock at $25 per share. The options were exercisable within a 5-year period beginning January 1, 2014,

> On November 1, 2011, Olympic Company adopted a stock-option plan that granted options to key executives to purchase 40,000 shares of the company’s $10 par value common stock. The options were granted on January 2, 2012, and were exercisable 2 years after

> On May 1, 2012, Barkley Company issued 3,000 $1,000 bonds at 102. Each bond was issued with one detachable stock warrant. Shortly after issuance, the bonds were selling at 98, but the fair value of the warrants cannot be determined. Instructions (a) Pre

> On September 1, 2012, Jacob Company sold at 104 (plus accrued interest) 3,000 of its 8%, 10-year, $1,000 face value, nonconvertible bonds with detachable stock warrants. Each bond carried two detachable warrants. Each warrant was for one share of common

> What are stock rights? How does the issuing company account for them?

> Prior Inc. has decided to raise additional capital by issuing $175,000 face value of bonds with a coupon rate of 10%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued

> On January 1, 2011, Trillini Corporation issued $3,000,000 of 10-year, 8% convertible debentures at 102. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be converted into eight shares of Trillini Corporation $100

> The December 31, 2012, balance sheet of Osygus Corp. is as follows. On March 5, 2013, Osygus Corp. called all of the bonds as of April 30, for the principal plus interest through April 30. By April 30, all bondholders had exercised their conversion to

> Wilco Corporation has the following account balances at December 31, 2012. Common stock, $5 par value …………………………………………….. $ 510,000 Treasury stock …………………………………………………………………….. 90,000 Retained earnings ………………………………………………………….. 2,340,000 Paid-in capital in

> If a company’s outstanding shares are increased through a stock dividend or a stock split, how would that alter the presentation of its EPS data?

> For each period that an income statement is presented, what must a company disclose about its EPS?

> For how many periods must a company present EPS data?

> Access the glossary (“Master Glossary”) to answer the following. (a) What is the definition of “basic earnings per share”? (b) What is “dilution”? (c) What is a “warrant”? (d) What is a “grant date”?

> Explain the difference between the voting-interest model and the risk-and-reward model used for consolidation.

> Where are gains and losses related to cash flow hedges involving anticipated transactions reported?

> In what situation will the unrealized holding gain or loss on an available-for-sale security be reported in income?

> What is the purpose of a fair value hedge?

> On January 1, 2012, when its $30 par value common stock was selling for $80 per share, Bartz Corp. issued $10,000,000 of 8% convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five

> What are the main distinctions between a traditional financial instrument and a derivative financial instrument?

> Swarten Corporation issued 600 shares of no-par common stock for $8,200. Prepare Swarten’s journal entry if (a) The stock has no stated value, and (b) The stock has a stated value of $2 per share.

> Wilco Corporation has the following account balances at December 31, 2012. Share capital—ordinary, $5 par value …………………………. $ 510,000 Treasury shares ……………………………………………………………. 90,000 Retained earnings ……………………………………………………. 2,340,000 Share premium—ordinary

> What is meant by the term underlying as it relates to derivative financial instruments?

> Franklin Corp. has an investment that it has held for several years. When it purchased the investment, Franklin classified and accounted for it as available-for-sale. Can Franklin use the fair value option for this investment? Explain.

> Hart Golf Co. uses titanium in the production of its specialty drivers. Hart anticipates that it will need to purchase 200 ounces of titanium in October 2012, for clubs that will be shipped in the holiday shopping season. However, if the price of titaniu

> What is the fair value option?

> When must a company recognize an asset retirement obligation?

> On August 15, 2012, Outkast Co. invested idle cash by purchasing a call option on Counting Crows Inc. common shares for $360. The notional value of the call option is 400 shares, and the option price is $40. (Market price of an Outkast share is $40.) The

> What is the GAAP definition of fair value?

> Sarazan Company issues a 4-year, 7.5% fixed-rate interest only, non-prepayable$1,000,000 note payable on December 31, 2012. It decides to change the interest rate from a fixed rate to variable rate and enters into a swap agreement with M&S Corp. The swap

> When is a debt security considered impaired? Explain how to account for the impairment of an available-for-sale debt security

> Gabel Company has bonds payable outstanding in the amount of $400,000, and the Premium on Bonds Payable account has a balance of $6,000. Each $1,000 bond is convertible into 20 shares of preferred stock of par value of $50 per share. All bonds are conver

> Buttercup Corporation issued 300 shares of $10 par value common stock for $4,500. Prepare Buttercup’s journal entry.

> On January 2, 2012, Parton Company issues a 5-year, $10,000,000 note at LIBOR, with interest paid annually. The variable rate is reset at the end of each year. The LIBOR rate for the first year is 5.8%. Parton Company decides it prefers fixed-rate financ

> Briefly discuss how a transfer of securities from the available-for-sale category to the trading category affects stockholders’ equity and income.

> On January 2, 2012, MacCloud Co. issued a 4-year, $100,000 note at 6% fixed interest, interest payable semiannually. MacCloud now wants to change the note to a variable-rate note. As a result, on January 2, 2012, MacCloud Co. enters into an interest rate

> Explain why reclassification adjustments are necessary.

> Presented below is selected information related to the financial instruments of Dawson Company at December 31, 2012. This is Dawson Company’s first year of operations. Instructions (a) Dawson elects to use the fair value option whenev

> Assume the same information as in E17-19 for Lilly Company. In addition, assume that the investment in the Woods Inc. stock was sold during 2013 for $195,000. At December 31, 2013, the following information relates to its two remaining investments of com

> Hiram Co. uses the equity method to account for investments in common stock. What accounting should be made for dividends received from these investments subsequent to the date of investment?

> Presented below is information related to Leland Inc. Instructions (a) Compute the following ratios or relationships of Leland Inc. Assume that the ending account balances are representative unless the information provided indicates differently. (1) C

> Presented below is information related to the purchases of common stock by Lilly Company during 2012. Instructions (a) What entry would Lilly make at December 31, 2012, to record the investment in Arroyo Company stock if it chooses to report this secur

> Why is the distinction between paid-in capital and retained earnings important?

> Schuss Inc. issued $3,000,000 of 10%, 10-year convertible bonds on June 1, 2012, at 98 plus accrued interest. The bonds were dated April 1, 2012, with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basi

> When the equity method is applied, what disclosures should be made in the investor’s financial statements?

> Vogue Company’s condensed financial statements provide the following information. Income Statement for the year ended 2012 Sales ……………

> On November 3, 2012, Sprinkle Co. invested $200,000 in 4,000 shares of the common stock of Pratt Co. Sprinkle classified this investment as available-for-sale. Sprinkle Co. is considering making a more significant investment in Pratt Co. at some point in

> Cairo Corporation has municipal bonds classified as available for-sale at December 31, 2012. These bonds have a par value of $800,000, an amortized cost of $800,000, and a fair value of $740,000. The unrealized loss of $60,000 previously recognized as ot

> The financial statements of Marks and Spencer plc Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://corporate.marksandspencer.com/documents/publications/2010/Annual_Report_2010. Instructions Refer to

> Costner Company has been operating for several years, and on December 31, 2012, presented the following balance sheet. The net income for 2012 was $25,000. Assume that total assets are the same in 2011 and 2012. Instructions Compute each of the follow

> LEW Jewelry Co. uses gold in the manufacture of its products. LEW anticipates that it will need to purchase 500 ounces of gold in October 2012, for jewelry that will be shipped for the holiday shopping season. However, if the price of gold increases, LEW

> On January 1, 2012, Meredith Corporation purchased 25% of the common shares of Pirates Company for $200,000. During the year, Pirates earned net income of $80,000 and paid dividends of $20,000. Instructions Prepare the entries for Meredith to record the

> What constitutes “significant influence” when an investor’s financial interest is below the 50% level?

> Distinguish between common and preferred stock.

> Presented below is a list of possible transactions. 1. Purchased inventory for $80,000 on account (assume perpetual system is used). 2. Issued an $80,000 note payable in payment on account (see item 1 above). 3. Recorded accrued interest on the note from

> For each of the unrelated transactions described below, present the entry(ies) required to record each transaction. 1. Coyle Corp. issued $10,000,000 par value 10% convertible bonds at 99. If the bonds had not been convertible, the company’s investment b

> Your client, Cascade Company, is planning to invest some of its excess cash in 5-year revenue bonds issued by the county and in the shares of one of its suppliers, Teton Co. Teton’s shares trade on the over-the-counter market. Cascade plans to classify t

> On December 31, 2012, Mercantile Corp. had a $10,000,000, 8% fixed-rate note outstanding, payable in 2 years. It decides to enter into a 2-year swap with Chicago First Bank to convert the fixed-rate debt to variable-rate debt. The terms of the swap indic

> Gregory Inc. acquired 20% of the outstanding common stock of Handerson Inc. on December 31, 2012. The purchase price was $1,250,000 for 50,000 shares. Handerson Inc. declared and paid an $0.80 per share cash dividend on June 30 and on December 31, 2013.

> Distinguish between the accounting treatment for available-for-sale equity securities and trading equity securities.

> Wynn Company offers a set of building blocks to customers who send in 3 UPC codes from Wynn cereal, along with 50¢. The block sets cost Wynn $1.10 each to purchase and 60¢ each to mail to customers. During 2012, Wynn sold 1,200,000 boxes of cereal. The c

> Presented below are three independent situations. 1. Marquart Stamp Company records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Marquart’s past experience indicates that only 80% of the stamps

> Komissarov Company has a debt investment in the bonds issued by KeuneInc. The bonds were purchased at par for $400,000 and, at the end of 2012, have a remaining life of 3 years with annual interest payments at 10%, paid at the end of each year. This debt

> Warren Co. purchased a put option on Echo common shares on January 7, 2012, for $360. The put option is for 400 shares, and the strike price is $85 (which equals the price of an Echo share on the purchase date). The option expires on July 31, 2012. The f

> For what reasons might a company restrict a portion of its retained earnings?

> Swanson Company has the following securities in its trading portfolio of securities on December 31, 2012. All of the securities were purchased in 2012. In 2013, Swanson completed the following securities transactions. March 1 …&acir

> On December 21, 2012, Zurich Company provided you with the following information regarding its trading investments. Previous fair value adjustment balance …………â€

> Ferraro, Inc. established a stock-appreciation rights (SAR) program on January 1, 2012, which entitles executives to receive cash at the date of exercise for the difference between the market price of the stock and the pre-established price of $20 on 5,0

> Leppard Corporation sells DVD players. The corporation also offers its customers a 2-year warranty contract. During 2012, Leppard sold 20,000 warranty contracts at $99 each. The corporation spent $180,000 servicing warranties during 2012, and it estimate

> Bassinger Company purchases an oil tanker depot on January 1, 2012, at a cost of $600,000. Bassinger expects to operate the depot for 10 years, at which time it is legally required to dismantle the depot and remove the underground storage tanks. It is es

> Schmitt Company must make computations and adjusting entries for the following independent situations at December 31, 2013. 1. Its line of amplifiers carries a 3-year warranty against defects. On the basis of past experience the estimated warranty costs

> Johnstone Co. purchased a put option on Ewing common shares on July 7, 2012, for $240. The put option is for 200 shares, and the strike price is $70. (The market price of a share of Ewing stock on that date is $70.) The option expires on January 31, 2013

> Feiner Co. had purchased 300 shares of Guttman Co. for $40 each this year and classified the investment as a trading security. Feiner Co. sold 100 shares of the stock for $43 each. At year-end, the price per share of the Guttman Co. stock had dropped to

> Why are held-to-maturity investments applicable only to debt securities?

> Streep Factory provides a 2-year warranty with one of its products which was first sold in 2012. In that year, Streep spent $70,000 servicing warranty claims. At year-end, Streep estimates that an additional $400,000 will be spent in the future to servic

> What are the considerations in imputing an appropriate interest rate?

> What are compensated absences?

> You are the independent auditor engaged to audit Millay Corporation’s December 31, 2012, financial statements. Millay manufactures household appliances. During the course of your audit, you discovered the following contingent liabilities. 1. Millay began

> Presented below are three independent situations. Answer the question at the end of each situation. 1. During 2012, Maverick Inc. became involved in a tax dispute with the IRS. Maverick’s attorneys have indicated that they believe it is probable that Mav

> The 2012 income statement of Wasmeier Corporation showed net income of $480,000 and an extraordinary loss of $120,000. Wasmeier had 100,000 shares of common stock outstanding all year. Prepare Wasmeier’s income statement presentation of earnings per shar

> Assume the same information as in IFRS17-12 except that Roosevelt has an active trading strategy for these bonds. The fair value of the bonds at December 31 of each year-end is as follows. In IFRS17-12 On January 1, 2012, Roosevelt Company purchased 12

> The treasurer of Miller Co. has read on the Internet that the stock price of Wade Inc. is about to take off. In order to profit from this potential development, Miller Co. purchased a call option on Wade common shares on July 7, 2012, for $240. The call

> Gator Co. invested $1,000,000 in Demo Co. for 25% of its outstanding stock. Demo Co. pays out 40% of net income in dividends each year. Instructions Use the information in the following T-account for the investment in Demo to answer the following questi

> On January 1, 2012, Roosevelt Company purchased 12% bonds, having a maturity value of $500,000, for $537,907.40. The bonds provide the bondholders with a10% yield. They are dated January 1, 2012, and mature January 1, 2017, with interest receivable Decem

> Calaf’s Drillers erects and places into service an off-shore oil platform on January 1, 2013, at a cost of $10,000,000. Calaf is legally required to dismantle and remove the platform at the end of its useful life in 10 years. Calaf estimates it will cost

> Moleski Company includes 1 coupon in each box of soap powder that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2012, Moleski Company purchased 8,800 premiums at 90 cents each and sold 120,000 boxes of soap powder at $3.30

> This comment appeared in the annual report of MacCloud Inc.: “The Company could pay cash or property dividends on the Class A common stock without paying cash or property dividends on the Class B common stock. But if the Company pays any cash or property

> The financial statements of Marks and Spencer plc (M&S) are available at the book’s companion website or can be accessed at http://corporate.marksandspencer.com/documents/publications/2010/Annual_Report_2010. Instructions Refer to M&S’s financial statem