The following transactions were completed by Montague Inc., whose fiscal year is the calendar year: Year 1 July 1. Issued $55,000,000 of 10-year, 9% callable bonds dated July 1, Year 1, at a market (effective) rate of 7%, receiving cash of $62,817,040. Interest is payable semiannually on December 31 and June 30. Oct. 1. Borrowed $450,000 by issuing a six-year, 8% installment note to Intexicon Bank. The note requires annual payments of $97,342, with the first payment occurring on September 30, Year 2. Dec. 31. Accrued $9,000 of interest on the installment note. The interest is payable on the date of the next installment note payment. 31. Paid the semiannual interest on the bonds. The bond premium amortization of $390,852 is combined with the semiannual interest payment. Year 2 June 30. Paid the semiannual interest on the bonds. The bond premium amortization of $390,852 is combined with the semiannual interest payment. Sept. 30. Paid the annual payment on the note, which consisted of interest of $36,000 and principal of $61,342. Dec. 31. Accrued $7,773 of interest on the installment note. The interest is payable on the date of the next installment note payment. 31. Paid the semiannual interest on the bonds. The bond premium amortization of $390,852 is combined with the semiannual interest payment. Year 3 June 30. Recorded the redemption of the bonds, which were called at 103. The balance in the bond premium account is $6,253,632 after payment of interest and amortization of premium have been recorded. Record the redemption only. Sept. 30. Paid the second annual payment on the note, which consisted of interest of $31,093 and principal of $66,249. Instructions 1. Journalize the entries to record the foregoing transactions. 2. Indicate the amount of the interest expense in (a) Year 1 and (b) Year 2. 3. Determine the carrying amount of the bonds as of December 31, Year 2.
> On January 6, Year 1, Bulldog Co. purchased 34% of the outstanding stock of Gator Co. for $212,000. Gator Co. paid total dividends of $24,000 to all shareholders on June 30. Gator had a net loss of $56,000 for Year 1. a. Journalize Bulldog’s purchase of
> On January 4, Year 1, Ferguson Company purchased 480,000 shares of Silva Company directly from one of the founders for a price of $30 per share. Silva has 1,200,000 shares outstanding, including the Daniels shares. On July 2, Year 1, Silva paid $750,000
> At a total cost of $5,600,000, Herrera Corporation acquired 280,000 shares of Tran Corp. common stock as a long-term investment. Herrera Corporation uses the equity method of accounting for this investment. Tran Corp. has 800,000 shares of common stock o
> Seamus Industries Inc. buys and sells investments as part of its ongoing cash management. The following investment transactions were completed during the year: Feb. 24. Acquired 1,000 shares of Tett Co. stock for $85 per share plus a $150 brokerage commi
> Yerbury Corp. manufactures construction equipment. Journalize the entries to record the following selected equity investment transactions completed by Yerbury during a recent year: Feb. 2. Purchased for cash 5,300 shares of Wong Inc. stock for $20 per sh
> The following equity investment transactions were completed by Romero Company during a recent year: Apr. 10. Purchased 5,000 shares of Dixon Company for a price of $25 per share plus a brokerage commission of $75. July 8. Received a quarterly dividend of
> On February 22, Stewart Corporation acquired 12,000 shares of the 400,000 outstanding shares of Edwards Co. common stock at $50 plus commission charges of $120. On June 1, a cash dividend of $1.40 per share was received. On November 12, 4,000 shares were
> On February 1, Hansen Company purchased $120,000 of 5%, 20-year Knight Company bonds at their face amount plus one month’s accrued interest. The bonds pay interest on January 1 and July 1. On October 1, Hansen Company sold $40,000 of the Knight Company b
> The following bond investment transactions were completed during a recent year by Starks Company: Year 1 Jan. 31. Purchased 75, $1,000 government bonds at 100 plus accrued interest of $375 (one month). The bonds pay 6% annual interest on July 1 and Janua
> Pecan Theatre Inc. owns and operates movie theaters throughout Florida and Georgia. Pecan Theatre has declared the following annual dividends over a six-year period: Year 1, $80,000; Year 2, $90,000; Year 3, $150,000; Year 4, $150,000; Year 5, $160,000;
> Bocelli Co. purchased $120,000 of 6%, 20-year Sanz County bonds on May 11, Year 1, directly from the county, at their face amount plus accrued interest. The bonds pay semiannual interest on April 1 and October 1. On October 31, Year 1, Bocelli Co. sold $
> Torres Investments acquired $160,000 of Murphy Corp., 5% bonds at their face amount on October 1, Year 1. The bonds pay interest on October 1 and April 1. On April 1, Year 2, Torres sold $60,000 of Murphy Corp. bonds at 102. Journalize the entries to rec
> Gonzalez Company acquired $200,000 of Walker Co., 6% bonds on May 1 at their face amount. Interest is paid semiannually on May 1 and November 1. On November 1, Gonzalez Company sold $70,000 of the bonds for 97. Journalize entries to record the following
> On December 31, Year 1, Valur Co. had the following available-for-sale investment disclosure within the Current Assets section of the balance sheet: Available-for-sale investments (at cost) ………………………………………………. $145,000 Plus valuation allowance for availa
> On May 12, Year 1, Chewco Co. purchased 2,000 shares of Jedi Inc. for $112 per share, including the brokerage commission. The Jedi investment was classified as an available-for-sale security. On December 31, Year 1, the fair value of Jedi Inc. was $124 p
> eBay Inc. developed a web-based marketplace at www.ebay.com, in which individuals can buy and sell a variety of items. eBay also acquired PayPal, an online payments system that allows businesses and individuals to send and receive online payments securel
> The market price for Microsoft Corporation closed at $55.48 and $46.45 on December 31, current year, and previous year, respectively. The dividends per share were $1.24 for current year and $1.12 for previous year. a. Determine the dividend yield for Mic
> During Year 2, Copernicus Corporation held a portfolio of available-for-sale securities having a cost of $185,000. There were no purchases or sales of investments during the year. The market values at the beginning and end of the year were $225,000 and $
> During Year 1, its first year of operations, Galileo Company purchased two available-fors-ale investments as follows: Assume that as of December 31, Year 1, the Hawking Inc. stock had a market value of $50 per share and the Pavlov Co. stock had a marke
> Storm, Inc. purchased the following available-for-sale securities during Year 1, its first year of operations: The market price per share for the available-for-sale security portfolio on December 31, Year 1, was as follows: ___________________Market Pr
> Selected transactions completed by ATV Discount Corporation during the current fiscal year are as follows: Jan. 5. Split the common stock 4 for 1 and reduced the par from $20 to $5 per share. After the split, there were 4,000,000 common shares outstandin
> Hurricane Inc. purchased a portfolio of available-for-sale securities in Year 1, its first year of operations. The cost and fair value of this portfolio on December 31, Year 1, was as follows: On June 12, Year 2, Hurricane purchased 1,450 shares of Rog
> The investments of Steelers Inc. include a single investment: 33,100 shares of Bengals Inc. common stock purchased on September 12, Year 1, for $13 per share including brokerage commission. These shares were classified as available-for-sale securities. A
> Highland Industries Inc. makes investments in available-for-sale securities. Selected income statement items for the years ended December 31, Year 2 and Year 3, plus selected items from comparative balance sheets, are as follows: There were no dividend
> The income statement for Delta-tec Inc. for the year ended December 31, Year 2, was as follows: Delta-tec Inc. Income Statement (selected items) For the Year Ended December 31, Year 2 Income from operations …………………………………… $299,700 Gain on sale of invest
> Last Unguaranteed Financial Inc. purchased the following trading securities during Year 1, its first year of operations: The market price per share for the trading security portfolio on December 31, Year 1, was as follows: _______________________Market
> Gruden Bancorp Inc. purchased a portfolio of trading securities during Year 1. The cost and fair value of this portfolio on December 31, Year 1, was as follows: On May 10, Year 2, Gruden Bancorp Inc. purchased 1,200 shares of Carroll Inc. at $29 per sh
> The investments of Charger Inc. include a single investment: 14,500 shares of Raiders Inc. common stock purchased on February 24, Year 1, for $38 per share including brokerage commission. These shares were classified as trading securities. As of the Dece
> JED Capital Inc. makes investments in trading securities. Selected income statement items for the years ended December 31, Year 2 and Year 3, plus selected items from comparative balance sheets, are as follows: There were no dividends. Determine the mi
> Hawkeye Company’s balance sheet reported, under the equity method, its long-term investment in Raven Company for comparative years as follows: In addition, the Year 2 Hawkeye Company income statement disclosed equity earnings in the R
> What causes a gain or loss on the sale of a bond investment?
> Morrow Enterprises Inc. manufactures bathroom fixtures. The stockholders’ equity accounts of Morrow Enterprises Inc., with balances on January 1, 20Y5, are as follows: Common Stock, $20 stated value (500,000 shares authorized, 375,000 shares issued). . .
> Why might a business invest cash in temporary investments?
> How are the balance sheet and income statement affected by fair value accounting?
> What are the factors contributing to the trend toward fair value accounting?
> What is the major difference in the accounting for a portfolio of trading securities and a portfolio of available-for-sale securities?
> In teams, select a public company that interests you. Obtain the company’s most recent annual report on Form 10-K. The Form 10-K is a company’s annually required filing with the Securities and Exchange Commission (SEC). It includes the company’s financia
> CEG Capital Inc. is a large holding company that uses long-term debt extensively to fund its operations. At December 31, the company reported total assets of $100 million, total debt of $55 million, and total equity of $45 million. In January, the compan
> The following financial data (in thousands) were taken from recent financial statements of Staples, Inc.: 1. Determine the times interest earned ratio for Staples in Year 3, Year 2, and Year 1? Round your answers to one decimal place. 2. Evaluate this
> You hold a 25% common stock interest in YouOwnIt, a family-owned construction equipment company. Your sister, who is the manager, has proposed an expansion of plant facilities at an expected cost of $26,000,000. Two alternative plans have been suggested
> Xentec Inc. has decided to expand its operations to owning and operating golf courses. The following is an excerpt from a conversation between the chief executive officer, Peter Kilgallon, and the vice president of finance, Dan Baron: Peter: Dan, have yo
> Alex Kelton recently won the jackpot in the Colorado lottery while he was visiting his parents. When he arrived at the lottery office to collect his winnings, he was offered the following three payout options: a. Receive $100,000,000 in cash today. b. Re
> The following selected accounts appear in the ledger of Parks Construction Inc. at the beginning of the current year: Preferred 2% Stock, $75 par (100,000 shares authorized, 80,000 shares issued) . . $ 6,000,000 Paid-In Capital in Excess of Par—Preferred
> Nordbock Inc. reports the following outstanding bond issue on its December 31, 20Y1, balance sheet: $1,000,000, 7%, 10-year bonds that pay interest semiannually. The bonds have been outstanding for five years and were originally issued at face amount. T
> Rodgers Corporation produces and sells football equipment. On July 1, Year 1, Rodgers Corporation issued $65,000,000 of 10-year, 12% bonds at a market (effective) interest rate of 10%, receiving cash of $73,100,469. Interest on the bonds is payable semia
> On July 1, Year 1, Livingston Corporation, a wholesaler of manufacturing equipment, issued $46,000,000 of 20-year, 10% bonds at a market (effective) interest rate of 11%, receiving cash of $42,309,236. Interest on the bonds is payable semiannually on Dec
> Three different plans for financing an $80,000,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax rate is estimated at 40% of income:
> Rodgers Corporation produces and sells football equipment. On July 1, Year 1, Rodgers Corporation issued $65,000,000 of 10-year, 12% bonds at a market (effective) interest rate of 10%, receiving cash of $73,100,469. Interest on the bonds is payable semia
> On July 1, Year 1, Livingston Corporation, a wholesaler of manufacturing equipment, issued $46,000,000 of 20-year, 10% bonds at a market (effective) interest rate of 11%, receiving cash of $42,309,236. Interest on the bonds is payable semiannually on Dec
> Campbell Inc. produces and sells outdoor equipment. On July 1, Year 1, Campbell Inc. issued $25,000,000 of 10-year, 10% bonds at a market (effective) interest rate of 9%, receiving cash of $26,625,925. Interest on the bonds is payable semiannually on Dec
> On July 1, Year 1, Danzer Industries Inc. issued $40,000,000 of 10-year, 7% bonds at a market (effective) interest rate of 8%, receiving cash of $37,282,062. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the
> Three different plans for financing an $18,000,000 corporation are under consideration by its organizers. Under each of the following plans, the securities will be issued at their par or face amount, and the income tax rate is estimated at 40% of income:
> On December 1 of the current year, the following accounts and their balances appear in the ledger of Latte Corp., a coffee processor: Preferred 2% Stock, $50 par (250,000 shares authorized, 80,000 shares issued). . . . . . . . . . . . . . . . . . . . . .
> Campbell, Inc. produces and sells outdoor equipment. On July 1, Year 1, Campbell, Inc. issued $25,000,000 of 10-year, 10% bonds at a market (effective) interest rate of 9%, receiving cash of $26,625,925. Interest on the bonds is payable semiannually on D
> On July 1, Year 1, Danzer Industries Inc. issued $40,000,000 of 10-year, 7% bonds at a market (effective) interest rate of 8%, receiving cash of $37,282,062. Interest on the bonds is payable semiannually on December 31 and June 30. The fiscal year of the
> The following transactions were completed by Winklevoss Inc., whose fiscal year is the calendar year: Year 1 July 1. Issued $74,000,000 of 20-year, 11% callable bonds dated July 1, Year 1, at a market (effective) rate of 13%, receiving cash of $63,532,26
> Emil Corp. produces and sells wind-energy-driven engines. To finance its operations, Emil Corp. issued $15,000,000 of 20-year, 9% callable bonds on May 1, 20Y1, at their face amount, with interest payable on May 1 and November 1. The fiscal year of the c
> Adele Corp., a wholesaler of music equipment, issued $22,000,000 of 20-year, 7% callable bonds on March 1, 20Y1, at their face amount, with interest payable on March 1 and September 1. The fiscal year of the company is the calendar year. Journalize the e
> Smiley Corporation wholesales repair products to equipment manufacturers. On April 1, Year 1, Smiley Corporation issued $20,000,000 of five-year, 9% bonds at a market (effective) interest rate of 8%, receiving cash of $20,811,010. Interest is payable sem
> On the first day of its fiscal year, Chin Company issued $10,000,000 of five-year, 7% bonds to finance its operations of producing and selling home improvement products. Interest is payable semiannually. The bonds were issued at a market (effective) inte
> Thomson Co. produces and distributes semiconductors for use by computer manufacturers. Thomson Co. issued $900,000 of 10-year, 7% bonds on May 1 of the current year at face value, with interest payable on May 1 and November 1. The fiscal year of the comp
> Stone Energy Corporation’s 7.5% bonds due in 2022 were reported as selling for 82.95. Were the bonds selling at a premium or at a discount? Why is Stone Energy Corporation able to sell its bonds at this price?
> Based on the data in Exercise 14-1, what factors other than earnings per share should be considered in evaluating these alternative financing plans? In Exercise 14-1 Domanico Co., which produces and sells biking equipment, is financed as follows: Bonds
> The declaration, record, and payment dates in connection with a cash dividend of $135,000 on a corporation’s common stock are January 12, March 13, and April 12. Journalize the entries required on each date.
> Domanico Co., which produces and sells biking equipment, is financed as follows: Bonds payable, 6% (issued at face amount) ……………………. $5,000,000 Preferred $2.00 stock, $100 par ……………………………………… 5,000,000 Common stock, $25 par …………………………………………………. 5,000,000
> Boyd Co. produces and sells aviation equipment. On the first day of its fiscal year, Boyd Co. issued $80,000,000 of five-year, 9% bonds at a market (effective) interest rate of 12%, with interest payable semiannually. Compute the following, presenting fi
> Ware Co. produces and sells motorcycle parts. On the first day of its fiscal year, Ware Co. issued $35,000,000 of five-year, 12% bonds at a market (effective) interest rate of 10%, with interest payable semiannually. Compute the following, presenting fig
> Shunda Corporation wholesales parts to appliance manufacturers. On January 1, Year 1, Shunda Corporation issued $22,000,000 of five-year, 9% bonds at a market (effective) interest rate of 7%, receiving cash of $23,829,684. Interest is payable semiannuall
> On the first day of its fiscal year, Ebert Company issued $50,000,000 of 10-year, 7% bonds to finance its operations. Interest is payable semiannually. The bonds were issued at a market (effective) interest rate of 9%, resulting in Ebert Company receivin
> Moss Co. issued $42,000,000 of five-year, 11% bonds, with interest payable semiannually, at a market (effective) interest rate of 9%. Determine the present value of the bonds payable using the present value tables in Exhibits 8 and 10. Round to the neare
> Pinder Co. produces and sells high-quality video equipment. To finance its operations, Pinder Co. issued $25,000,000 of five-year, 7% bonds, with interest payable semiannually, at a market (effective) interest rate of 9%. Determine the present value of t
> Assume the same data as in Exercise 14-19, except that the current interest rate is 10%. Will the present value of your winnings using an interest rate of 10% be more than the present value of your winnings using an interest rate of 6%? Why or why not?
> Determine the present value of $200,000 to be received at the end of each of four years, using an interest rate of 7%, compounded annually, as follows: a. By successive computations, using the present value table in Exhibit 8. b. By using the present val
> Tommy John is going to receive $1,000,000 in three years. The current market rate of interest is 10%. a. Using the present value of $1 table in Exhibit 8, determine the present value of this amount compounded annually. b. Why is the present value less th
> Work Place Products Inc., a wholesaler of office products, was organized on July 1 of the current year, with an authorization of 50,000 shares of preferred 2% stock, $40 par, and 750,000 shares of $7 par common stock. The following selected transactions
> Iacouva Company reported the following on the company’s income statement for two recent years: a. Determine the times interest earned ratio for the current year and the prior year. Round to one decimal place. b. What conclusions can y
> Loomis, Inc. reported the following on the company’s income statement in two recent years: a. Determine the times interest earned ratio for the current year and the prior year. Round to one decimal place. b. Is this ratio improving or
> The following data were taken from recent annual reports of Southwest Airlines, which operates a low-fare airline service to more than 50 cities in the United States: a. Determine the times interest earned ratio for the current and preceding years. Rou
> At the beginning of the current year, two bond issues (Simmons Industries 7%, 20-year bonds and Hunter Corporation 8%, 10-year bonds) were outstanding. During the year, the Simmons Industries bonds were redeemed and a significant loss on the redemption o
> On January 1, Year 1, Bryson Company obtained a $147,750, four-year, 7% installment note from Campbell Bank. The note requires annual payments of $43,620, beginning on December 31, Year 1. a. Prepare an amortization table for this installment note, simil
> On January 1, Year 1, Luzak Company issued a $120,000, five-year, 6% installment note to McGee Bank. The note requires annual payments of $28,488, beginning on December 31, Year 1. Journalize the entries to record the following: Year 1 Jan. 1. Issued the
> On the first day of the fiscal year, Shiller Company borrowed $85,000 by giving a seven-year, 7% installment note to Soros Bank. The note requires annual payments of $15,772, with the first payment occurring on the last day of the fiscal year. The first
> Fleeson Company needs additional funds to purchase equipment for a new production facility and is considering either issuing bonds payable or borrowing the money from a local bank in the form of an installment note. How does an installment note differ fr
> If you asked your broker to buy you a 12% bond when the market interest rate for such bonds was 11%, would you expect to pay more or less than the face amount for the bond? Explain.
> In teams, select a public company that interests you. Obtain the company’s most recent annual report on Form 10-K. The Form 10-K is a company’s annually required filing with the Securities and Exchange Commission (SEC). It includes the company’s financia
> Imaging Inc., a developer of radiology equipment, has stock outstanding as follows: 40,000 shares of cumulative preferred 2% stock, $75 par, and 100,000 shares of $50 par common. During its first four years of operations, the following amounts were distr
> Lou Hoskins and Shirley Crothers are organizing Red Lodge Metals Unlimited Inc. to undertake a high-risk gold-mining venture in Canada. Lou and Shirley tentatively plan to request authorization for 400,000,000 shares of common stock to be sold to the gen
> Tommy Gunn is a division manager for K-Cern Inc., a small pharmaceutical company. Tommy’s division has been working on a new drug that has the potential to revolutionize the treatment of skin cancer. Once the drug is proven to be effective in clinical tr
> Epstein Engineering Inc. began operations on January 5, 20Y8, with the issuance of 500,000 shares of $80 par common stock. The sole stockholders of Epstein Engineering Inc. are Barb Abrams and Dr. Amber Epstein, who organized Epstein Engineering Inc. wit
> Bernie Ebbers, the CEO of WorldCom, a major telecommunications company, was having personal financial troubles. Ebbers pledged a large stake of his WorldCom stock as security for some personal loans. As the price of WorldCom stock sank, Ebbers’s bankers
> Motion Designs Inc. has paid quarterly cash dividends since 20Y7. These dividends have steadily increased from $0.05 per share to the latest dividend declaration of $0.50 per share. The board of directors would like to continue this trend and is hesitant
> Pulsar Optics produces medical lasers for use in hospitals. The accounts and their balances appear in the ledger of Pulsar Optics on April 30 of the current year as follows: Preferred 1% Stock, $120 par (300,000 shares authorized, 36,000 shares issued) .
> Yosemite Bike Corp. manufactures mountain bikes and distributes them through retail outlets in California, Oregon, and Washington. Yosemite Bike Corp. has declared the following annual dividends over a six-year period ended December 31 of each year: Year
> West Yellowstone Outfitters Corporation manufactures and distributes leisure clothing. Selected transactions completed by West Yellowstone Outfitters during the current fiscal year are as follows: Jan. 15. Split the common stock 4 for 1 and reduced the p
> Nav-Go Enterprises Inc. produces aeronautical navigation equipment. The stockholders’ equity accounts of Nav-Go Enterprises Inc., with balances on January 1, 20Y3, are as follows: Common Stock, $5 stated value (900,000 shares authorized, 620,000 shares i
> Soto Industries Inc. is an athletic footware company that began operations on January 1, Year 1. The following transactions relate to debt investments acquired by Soto Industries Inc., which has a fiscal year ending on December 31: Year 1 Apr. 1. Purchas
> O’Brien Industries Inc. is a book publisher. The comparative unclassified balance sheets for December 31, Year 2 and Year 1 follow. Selected missing balances are shown by letters. Note 1. Investments are classified as available for sa
> Diamondback Welding & Fabrication Corporation sells and services pipe welding equipment in Illinois. The following selected accounts appear in the ledger of Diamondback Welding & Fabrication Corporation at the beginning of the current fiscal year: Prefer
> Rios Financial Co. is a regional insurance company that began operations on January 1, Year 1. The following transactions relate to trading securities acquired by Rios Financial Co., which has a fiscal year ending on December 31: Year 1 Feb. 1. Purchased
> Caterpillar Inc. and Deere & Company are two large companies that manufacture and sell equipment used in the construction, mining, agricultural, and forestry industries. The companies reported the following data (in millions) for two recent years:
