R. J. Winter Co. recently issued $100,000, 10-year deferred interest bonds. The bonds have a stated rate of 10%, and interest is to be paid in 10 semiannual payments beginning in Year 6. The market rate of interest on the date of issuance was 8%. Instructions: 1. Compute the maximum amount an investor should pay for these bonds. (Round to the nearest dollar.) 2. Prepare a bond amortization schedule for R. J. Winter, assuming the effective interest method is used. (Round to the nearest dollar.)
> Rhiener Corporation initiated a performance-based employee stock option plan on January 1, 2012. The performance base for the plan is net sales in the year 2014. The plan provides for stock options to be awarded to the employees as a group on the followi
> On January 1, 2012, Obregon Supply Company established a stock-based compensation plan for its senior employees. A total of 45,000 options was granted that permit employees to purchase 45,000 shares of $2 par common stock at $29 per share. Each option ha
> Western Company wants to raise additional equity capital. After analysis of the available options, the company decides to issue 1,500 shares of $20 par preferred stock with detachable warrants. The package of the stock and warrants sells for $90. The war
> In 2013, Calton Inc. had 100,000 shares of $1.50 par value common stock outstanding. Calton issued 100,000 stock rights. Five rights, plus $50 in cash, are required to purchase one new share of Calton common stock. On the date the rights were issued, Cal
> The company received subscriptions for 20,000 shares of $1 par common stock for $25 per share. The company received 40% of the subscription amount immediately and the remainder two months later. Make the journal entries necessary to record the initial su
> The stockholders’ equity of Thomas Company as of December 31, 2012, was as follows: Common stock, $1 par, authorized 275,000 shares; 240,000 shares issued and outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 240,
> Holanna Company reported the following balances related to common stock as of December 31, 2012: Common stock, $1 par, 200,000 shares issued and outstanding . . . . . . . . . . . . . . . . . . $ 200,000 Paid-in capital in excess of par. . . . . . . . .
> Palo Verde Company was incorporated on January 1, 2013, with the following authorized capitalization: • 25,000 shares of common stock, stated value $6 per share • 8,000 shares of 8% cumulative preferred stock, par value $20 per share Make the entries req
> Solar Storm Inc. began operations on June 30, 2011, and issued 60,000 shares of $1 par common stock on that date. On December 31, 2011, Solar Storm declared and paid $24,200 in dividends. After a vote of the board of directors, Solar Storm issued 25,000
> Under what circumstances is a gain recognized when a productive asset is exchanged for a similar productive asset? A loss?
> Verdero Company is authorized to issue 100,000 shares of $2 par value common stock. Verdero has the following transactions: (a) Issued 20,000 shares at $30 per share; received cash. (b) Issued 250 shares to attorneys for services in securing the corporat
> Beginning balances in the equity accounts were as follows: Common stock, at par . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 2,000 Paid-in capital in excess of par. . . . . . . . . . .
> Refer to Practice 13-20. Compute the balance in (1) Retained Earnings and (2) Accumulated Other Comprehensive Income as of the end of each year: 2011, 2012, 2013. In Practice 13-20 The company started business on January 1, 2011. Net income and divide
> The company had 10,000 shares of $1 par common stock outstanding. When each share of stock had a market value of $130, the company decided to reduce the price per share of stock to $65 by doubling the number of shares outstanding. Make the journal entrie
> The company had 40,000 shares of $1 par common stock outstanding. When each share of stock had a market value of $44, the company declared and distributed a 10% stock dividend. After the distribution of the dividend shares, each share of stock had a mark
> On January 1, the company purchased 10,000 shares of Wilsonville Company stock for $20 per share as an available-for-sale investment. In March, the company decided to distribute the Wilsonville shares as a property dividend to its stockholders. The Wilso
> On January 1, Year 1, the company wrote a put option agreeing to purchase 100 shares of its own stock for $50 per share on December 31, Year 2, at the option of the purchaser of the put option. The market price of the company’s shares on January 1, Year
> On January 1, Year 1, the company issued mandatorily redeemable preferred shares in exchange for $2,000 cash. No dividends are to be paid on these shares, and they must be redeemed in exactly two years, on January 1, Year 3, for $2,332.80. The interest r
> Refer to Practice 13-8. Assume that the stock-based compensation plan involves stock appreciation rights (SARs). At the end of three years, the employees are given a cash award equal to the excess of the fair value at that time of 150,000 shares of stock
> You are the chief financial officer of a local manufacturing company, Larsen Enterprises. This company is run by two brothers, Steve and John Larsen. The Larsen brothers have built this company up from a small 5-man shop to a company now employing over 2
> What was the most significant change in accounting for income tax carryforwards between pre-Codification Statement No. 96 and pre-Codification Statement No. 109? (Pre-Codification Statement No. 109 is the source for most of the existing provisions in FAS
> J. R. Chump, president of Pro Keeper Industries, is contemplating the issuance of long-term debt to finance plant expansion and renovation. In the past, his company has issued traditional debt instruments that require regular interest payments and a reti
> Examine the partial balance sheet of Altria Group shown below and answer the following questions. 1. Current assets for Altria Group (parent company of Philip Morris) totaled $5,773 (in millions) at the end of 2009. Compute the company’
> The company intends to issue 10-year bonds with a face value of $1,000. The bonds carry a coupon rate of 13%, and interest is paid semiannually. On the issue date, the market interest rate for bonds issued by companies with similar risk is 8% compounded
> Review the 2009 balance sheet data for Hewlett-Packard (HP) and Dell shown below. 1. Compute each company’s current ratio for 2009. Based on the result, which company appears to be more liquid? 2. Compute each companyâ€
> In December of 2002, the Boston Celtics were purchased by a private investment group. Now that the Celtics are owned by a private group, their financial statements are not publicly available. However, prior to their going private, their financial stateme
> Locate The Walt Disney Company’s 2009 annual report on the Internet and answer the following questions. 1. What is the largest liability listed in Disney’s 2009 balance sheet? 2. By what percentage did Disney change its total borrowings (current and long
> Jefferson Corporation has $20,000,000 of 10% bonds outstanding. Because of cash flow problems, the company is behind in interest payments and in contributions to its bonds retirement fund. The market value of the bonds has declined until it is currently
> John Jex, CPA, had just delivered a keynote address to a banker’s organization on the merits of valuing loan portfolio assets at fair values that reflected changing interest rates. During the question-and-answer period, he was asked why bank liabilities
> Soto Inc., a closely held corporation, has never been audited and is seeking a large bank loan for plant expansion. The bank has requested audited financial statements. In conference with the president and majority stockholder of Soto, the auditor is inf
> Professional athletes regularly sign long-term multimillion-dollar contracts in which they promise to play for a particular team for a specified time period. Owners of these teams often sign long-term leases for the use of playing facilities for a specif
> The conversion of convertible bonds to common stock may be viewed as an exchange involving no gain or loss or as a transaction for which market values should be recognized and a gain or loss reported. What arguments support each of these views for the is
> In the latter part of 2012, New Iberia Company experienced severe financial pressure and was in default of meeting interest payments on long-term notes of $4,500,000 due on December 31, 2017. The interest rate on the debt was 10%, payable semiannually on
> Volatile Company, after having experienced financial difficulties in 2011, negotiated with two major creditors and arrived at an agreement to restructure its debts on December 31, 2011. The two creditors were M. Voisin and G. Stock. Voisin was owed princ
> 1. On December 31, 2014, Moss Co. issued $1,000,000 of 11% bonds at 109. Each $1,000 bond was issued with 50 detachable stock warrants, each of which entitled the bondholder to purchase one share of $5 par common stock for $25. Immediately after issuance
> The company intends to issue 20-year bonds with a face value of $1,000. The bonds carry a coupon rate of 9%, and interest is paid semiannually. On the issue date, the market interest rate for bonds issued by companies with similar risk is 12% compounded
> On January 1, 2012, Brewster Company issued 2,000 of its 5-year, $1,000 face value, 11% bonds dated January 1 at an effective annual interest rate (yield) of 9%. Interest is payable each December 31. Brewster uses the effective-interest method of amortiz
> Von Surf Co. issued $1,200,000 of convertible 10-year debentures on July 1, 2012. The debentures provide for 8% interest payable semiannually on January 1 and July 1. The discount in connection with the issue was $18,000, which is being amortized monthly
> At the beginning of 2011, Wheel R. Dealer purchased the net assets of Consolidated Corp. by issuing 10-year, 10% bonds with a face value of $100,000,000, with semiannual interest payments made on June 30 and December 31 and no interest payments made unti
> Gerona Company authorized the sale of $300,000 of 10%, 10-year debentures on January 1, 2008. Interest is payable on January 1 and July 1. The entire issue was sold on April 1, 2008, at 103 plus accrued interest. On April 1, 2013, $100,000 of the bond is
> In auditing the books for Stiller Corporation as of December 31, 2013, before the accounts are closed, you find the following long-term investment account balance: Instructions: 1. Give the entries that should have been made relative to the investment
> Fitzgerald Inc. issued $750,000 of 8-year, 11% notes payable dated April 1, 2009. Interest on the notes is payable semiannually on April 1 and October 1. The notes were sold on April 1, 2009, to an underwriter for $720,000 net of issuance costs. The note
> Why is a corridor amount identified in recognizing gain or loss from pension plans?
> On May 1, 2010, Glacier Bay Co. acquired $30,000 of Horizon Corp. 8% bonds at 97 plus accrued interest. Interest on bonds is payable semiannually on March 1 and September 1, and bonds mature on September 1, 2013. On May 1, 2011, Glacier Bay Co. sold bon
> On June 1, 2012, Chloe Inc. purchased as a long-term investment 800 of the $1,000 face value, 9% bonds of Logan Corporation for $731,052. The bonds were purchased to yield 11% interest. Interest is payable semiannually on December 1 and June 1. The bonds
> Greenwood Company sold $4,000,000 of 7% first-mortgage bonds on October 1, 2005, at $3,479,683 plus accrued interest. The bonds were dated July 1, 2005; interest payable semiannually on January 1 and July 1; redeemable after June 30, 2010, to June 30, 20
> On April 1, 2003, Rowe Tool Company authorized the sale of $5,000,000 of 6% convertible bonds with interest payment dates of April 1 and October 1. The bonds were sold on July 1, 2003, and mature on April 1, 2023. The bond discount totaled $398,200. The
> Refer to Practice 12-4. What is the present value of Florence’s monthly mortgage payments after 12 payments have been made? In Practice 12-4 Florence Clark purchased a house for $300,000. She paid cash of 10% of the purchase price and signed a mortgage
> On January 1, 2013, Datalink Inc. issued $100,000, 10%, 10-year bonds when the market rate of interest was 8%. Interest is payable on June 30 and December 31. The following financial information is available: Sales . . . . . . . . . . . . . . . . . . .
> Bray Co. acquired $30,000 of Honey Sales Co.’s 7% bonds, interest payable semiannually, bonds maturing in five years. The bonds were acquired at $32,626, a price to return approximately 5%. Instructions: 1. Prepare tables to show the periodic adjustment
> Lighthouse Enterprises decided to issue $1,400,000 of 10-year bonds. The interest rate on the bonds is stated at 10%, payable semiannually. At the time the bonds were sold, the market rate had increased to 12%. Instructions: 1. Determine the maximum amo
> On January 1, 2013, Encino Company issued bonds with a face value of $1,000,000 and a maturity date of December 31, 2022. The bonds have a stated interest rate of 8%, payable on January 1 and July 1. They were sold to SeaRay Company for $820,744, a yield
> Distinguish between (a) Secured and unsecured bonds, (b) Collateral trust and debenture bonds, (c) Convertible and callable bonds, (d) Coupon and registered bonds, (e) Municipal and corporate bonds, and (f) Term and serial bonds.
> On January 1, 2013, Picard Inc. purchased a new piece of equipment from LaForge Engineering to expand its production facilities. The equipment was purchased at a cost of $800,000. Picard financed the purchase with an $800,000 mortgage to be repaid in ann
> The following information comes from the financial statements of Randall Stewart Company. Current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 80,000 Accounts payable
> Moriarty Co. is experiencing financial difficulties. Income has exhibited a downward trend, and the company reported its first loss in company history this past year. The firm has been unable to service its debt and, as a result, has missed two semiannua
> McKeon Machine Company has outstanding a $210,000 note payable to Tejon Investment Corporation. Because of financial difficulties, McKeon negotiates with Tejon to exchange inventory of machine parts to satisfy the debt. The cost of the inventory transfer
> Ryan Marie Company has one asset, a bond issued by Miles Company that Ryan Marie purchased (on the day it was issued) as an investment. Ryan Marie also has only one liability, one of its own bonds that was to finance the purchase of the Miles bond invest
> Clarkston Inc. issued $1,000,000 of convertible 10-year, 11% bonds on July 1, 2012. The interest is payable semiannually on January 1 and July 1. The discount in connection with the issue was $9,500, which is amortized monthly using the straight-line bas
> Joy Insurance decides to finance expansion of its physical facilities by issuing convertible debenture bonds. The terms of the bonds follow: maturity date 10 years after May 1, 2012, the date of issuance; conversion at option of holder after two years; 2
> Chiam Corporation has $300,000 of 12% bonds, callable at 102, with a remaining 10-year term, and interest payable semiannually. The bonds are currently valued on the books at $290,000, and the company has just made the interest payment and adjustments fo
> The December 31, 2012, balance sheet of Spring Company includes the following items: 8% bonds payable due December 31, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $200,000 Premium on bonds payable . . . . . . . . . . .
> The Long-Term Debt section of Rodman Company’s balance sheet as of December 31, 2012, included 8% bonds payable of $600,000 less unamortized discount of $44,000. Further examination revealed that these bonds were issued to yield 11%. The amortization of
> What are the two steps that are required in determining the amount of tax benefit to be recognized in association with an uncertain tax position?
> What factors must be considered in determining the periodic depreciation charges that should be made for a company’s depreciable assets?
> Jennifer Stack acquired $50,000 of Old town Corp. 9% bonds on July 1, 2010. The bonds were acquired at 92; interest is paid semiannually on March 1 and September 1. The bonds mature September 1, 2017. Stack’s books are kept on a calendar-year basis. On F
> In 1996, the IASB revised IAS 12. Did that revision make the international standard for deferred tax accounting more or less similar to the U.S. standard?
> Tanzanite Corporation issued $500,000 of 7% debentures to yield 11%, receiving $424,624. Interest is payable semiannually, and the bonds mature in five years. 1. What entries would be made by Tanzanite for the first two interest payments, assuming premiu
> What rules govern the netting of deferred tax assets and deferred tax liabilities?
> Assume that $280,000 of Denham Springs School District 8% bonds are sold on the bond issue date for $257,196. Interest is payable semiannually, and the bonds mature in 15 years. The purchase price provides a return of 9% on the investment. 1. What entrie
> In practice, the provisions for accounting for uncertain tax positions are relatively easy to apply.” Do you agree or disagree? Explain.
> On January 1, 2012, Terrel Company sold $100,000 of 10-year, 8% bonds at 93.5, an effective rate of 9%. Interest is to be paid on July 1 and December 31. Compute the amount of premium or discount amortization in 2012 and 2013 using (1) The straight-line
> Is prior service cost recognized as an expense in the period in which it initially arises?
> On January 1, 2012, Housen Company issued 10-year bonds of $500,000 at 102. Interest is payable on January 1 and July 1 at 10%. On April 1, 2013, Housen Company reacquires and retires 50 of its own $1,000 bonds at 98 plus accrued interest. The fiscal per
> How is the classification of assets (current or noncurrent) arising from NOL carryforwards determined under FASB ASC Topic 740?
> Briefly describe the four procedures followed in testing goodwill for impairment.
> George’s Inc. is considering issuing bonds to finance the acquisition of a nationwide chain of distributors of George’s products. George’s is contemplating two different types of bonds to raise the required $180 million purchase price. The first is a tra
> What are the sources of income through which the tax benefit of a deferred tax asset can be realized?
> In each of the following independent cases, state whether the bonds were issued at par, a premium, or a discount. Explain your answers. (a) Pop-up Manufacturing sold 1,500 of its $1,000, 8% stated-rate bonds when the market rate was 7%. (b) Splendor, Inc
> What factors must actuaries consider in determining the amount of future benefits under a defined benefit pension plan?
> What is the market value of each of the following bond issues? (Round to the nearest dollar.) (a) 10% bonds of $1,000,000 sold on bond issue date; 10-year life; interest payable semiannually; effective rate, 12%. (b) 9% bonds of $200,000 sold on bond iss
> When is a valuation allowance necessary?
> On July 1, 2013, Ketchikan Inc. borrowed $90,000 to finance the purchase of machinery. The terms of the mortgage require payments to be made at the end of every month with the first payment of $1,589 being due on July 31, 2013. The length of the mortgage
> What is meant by the word vesting?
> On January 1, 2013, Lily Company purchased a building for $2,000,000. The company made a 25% down payment and took out a mortgage payable over 30 years with monthly payments of $11,006.47. The first payment is due February 1, 2013. The mortgage interest
> What is a drawback of the asset and liability method?
> How would you define “uncertain” tax position?
> Refer to Practice 12-22. Assume all of the same facts except that the principal repayment amount will be dropped to $8,000 (from $10,000) instead of to $5,000. (1) Make the journal entry necessary on the company’s books to record this debt restructuring
> What are the major advantages of the asset and liability method?
> On January 1, the company obtained a $10,000, 8% loan. The $800 interest is payable at the end of each year, with the principal amount to be repaid in five years. As of the end of the year, the first year’s interest of $800 is not yet paid because the co
> One possibility for reporting income tax expense in the income statement for a given year is to merely report the amount of income tax payable in that year. What is wrong with this approach?
> Consider the following information: Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,300 Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . .
> Hinton Exploration Company reported pretax financial income of $637,000 for the calendar year 2013. Included in the Other Income section of the income statement was $98,000 of interest revenue from municipal bonds held by the company. The income statemen
> The company has one asset, a bond (called Bond B) that it purchased (on the day it was issued) as an investment, and one liability, one of its own bonds (called Bond X) that the company issued to finance the purchase of the Bond B investment. The company
> Goshute Company computed pretax financial income of $50,000 for the year ended December 31, 2013. Taxable income for the year was $15,000. Accumulated temporary differences as of December 31, 2012, were $120,000. A deferred tax liability of $48,000 was i
> The company has convertible bonds with a total face amount of $100,000 and a carrying value of $98,500. The bonds are converted into 2,000 shares of $1 par common stock. Each share of stock had a market value of $55 on the date of conversion. Make the jo
> Relevan Company computed a pretax financial loss of $15,000 for the first year of its operations ended December 31, 2013. Included in the loss was $42,000 in uncollectible accounts expense that was accrued on the books in 2013 using an allowance system b
> Briefly describe the three types of intangible assets in terms of amortization and impairment.
> The company issued convertible bonds with a total face value of $100,000 for $111,000. If the bonds had been issued without the conversion feature, their issuance price would have been $101,000. Make the journal entry necessary to record the issuance of
> Fulton Company computed a pretax financial loss of $18,000 for the first year of its operations ended December 31, 2013. This loss did not include $25,000 in unearned rent revenue that was recognized as taxable income in 2013 when the cash was received.
