True or False: Households sell finished products to businesses.
> Dividends are sometimes said to have been paid “out of retained earnings.” What is the error, if any, in that statement?
> Distinguish between the following interest rates for bonds payable: (a) Yield rate. (b) Nominal rate. (c) Stated rate. (d) Market rate. (e) Effective rate.
> What factors influence the dividend policy of a company?
> Indicate how each of the following accounts should be classified in the stockholders’ equity section. (a) Common Stock (b) Retained Earnings (c) Paid-in Capital in Excess of Par—Common Stock (d) Treasury Stock (e) Paid-in Capital from Treasury Stock (f)
> Satchel Inc. purchases 10,000 shares of its own previously issued $10 par common stock for $290,000. Assuming the shares are held in the treasury with intent to reissue, what effect does this transaction have on (a) Net income, (b) Total assets, (c) Tota
> List possible sources of additional paid-in capital.
> Where in the financial statements is preferred stock normally reported?
> Dagwood Inc. recently noted that its 4% preferred stock and 4% participating preferred stock, which are both cumulative, have priority as to dividends up to 4% of their par value. Its participating preferred stock participates equally with the common sto
> What features or rights may alter the character of preferred stock?
> Discuss the propriety of showing: (a) Treasury stock as an asset. (b) “Gain” or “loss” on sale of treasury stock as additions to or deductions from income. (c) Dividends received on treasury stock as income.
> For what reasons might a corporation purchase its own stock?
> Explain how underwriting costs and accounting and legal fees associated with the issuance of stock should be recorded.
> Assume the bonds in IFRS14-3 were issued for $644,636 and the effective-interest rate is 6%. Prepare the company’s journal entries for (a) The January 1 issuance, (b) The July 1 interest payment, and (c) The December 31 adjusting entry In IFRS14-3 On Ja
> What are the different bases for stock valuation when assets other than cash are received for issued shares of stock?
> Explain the difference between the proportional method and the incremental method of allocating the proceeds of lump-sum sales of capital stock.
> Describe the accounting for the issuance for cash of no-par value common stock at a price in excess of the stated value of the common stock.
> What is meant by par value, and what is its significance to stockholders?
> Explain each of the following terms: authorized capital stock, unissued capital stock, issued capital stock, outstanding capital stock, and treasury stock.
> If a company chooses to purchase its own shares and then either (1) Retires the repurchased shares and issues additional shares, or (2) Resells the repurchased shares, can a gain or loss be recognized by the company? Why or why not?
> A company plans to issue shares and wants to know the SEC’s stance on the accounting treatment for the costs of issuing stock. Can these costs be deferred, or must they be expensed immediately?
> At what percentage point can the issuance of additional shares still qualify as a stock dividend, as opposed to a stock split?
> Access the glossary (“Master Glossary”) to answer the following. (a) What is a “convertible security”? (b) What is a “stock dividend”? (c) What is a “stock split”? (d) What are “participation rights”?
> 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
> On January 1, 2012, JWS Corporation issued $600,000 of 7% bonds, due in 10 years. The bonds were issued for $559,224, and pay interest each July 1 and January 1. Prepare the company’s journal entries for (a) The January 1 issuance, (b) The July 1 interes
> Recall from Chapter 13 that Hincapie Co. (a specialty bike-accessory manufacturer) is expecting growth in sales of some products targeted to the low-price market. Hincapie is contemplating a preference share issue to help finance this expansion in operat
> Teller Corporation’s post-closing trial balance at December 31, 2012, was as follows. At December 31, 2012, Teller had the following number of ordinary and preference shares. The dividends on preference shares are $4 cumulative. In
> Weisberg Corporation has 10,000 shares of $100 par value, 6%, preference shares and 50,000 ordinary shares of $10 par value outstanding at December 31, 2012. Instructions Answer the questions in each of the following independent situations. (a) If the p
> Ravonette Corporation issued 300 shares of $10 par value ordinary shares and 100 shares of $50 par value preference shares for a lump sum of $13,500. The ordinary shares have a market price of $20 per share, and the preference shares have a market price
> 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
> Kaymer Corporation issued 300 shares of $10 par value ordinary shares for $4,500. Prepare Kaymer’s journal entry.
> Indicate how each of the following accounts should be classified in the equity section. (a) Share Capital—Ordinary (b) Retained Earnings (c) Share Premium—Ordinary (d) Treasury Shares (e) Share Premium—Treasury (f) Share Capital—Preference (g) Accumulate
> Explain each of the following terms: authorized ordinary shares, unissued ordinary shares, issued ordinary shares, outstanding ordinary shares, and treasury shares.
> Mary Tokar is comparing a GAAP-based company to a company that uses IFRS. Both companies report equity investments. The IFRS company reports unrealized losses on these investments under the heading “Reserves” in its equity section. However, Mary can find
> Briefly discuss the implications of the financial statement presentation project for the reporting of stockholders’ equity.
> What are the general rules for measuring and recognizing gain or loss by a debt extinguishment with modification?
> The following article appeared in the Wall Street Journal. Bond Markets Giant Commonwealth Edison Issue Hits Resale Market With $70 Million Left Over new york—Commonwealth Edison Co.’s slow-selling new 9¼% bonds were tossed onto the resale market at a re
> True or False: A market may collapse and have relatively few transactions between buyers and sellers if buyers have more information than sellers.
> Place an “M” beside the items in the following list that describe a moral hazard problem and an “A” beside those that describe an adverse selection problem. a. A person with a terminal illness buys several life insurance policies through the mail. b. A
> Choose the correct option Efficiency losses ____________________________. a. Are not possible if suppliers are willing to produce and sell a product. b. Can only result from underproduction. c. Can only result from overproduction. d. None of the above.
> Look at Tables 4.1 and 4.2 together. What is the total surplus if Bob buys a unit from Carlos? If Barb buys a unit from Courtney? If Bob buys a unit from Chad? If you match up pairs of buyers and sellers so as to maximize the total surplus of all transa
> Match each of the following characteristics or scenarios with either the term negative externality or the term positive externality. a. Overallocation of resources. b. Tammy installs a very nice front garden, raising the property values of all the other
> Use your demand schedule for a public good, determined in problem 5, and the following supply schedule to ascertain the optimal quantity of this public good. Q, $19 10 16 8 13 6. 10 4 7 4 1
> An apple grower’s orchard provides nectar to a neighbor’s bees, while the beekeeper’s bees help the apple grower by pollinating his apple blossoms. Use Figure 4.6b to explain why this situation of dual positive externalities might lead to an underallocat
> Governments can use subsidies to increase demand. For instance, the government can pay farmers to use organic fertilizers rather than traditional fertilizers. That subsidy increases the demand for organic fertilizer. Consider two industries, one in which
> Assume that both the supply of bottled water and the demand for bottled water rise during the summer but that supply increases more rapidly than demand. What can you conclude about the directions of the impacts on equilibrium price and equilibrium quanti
> Critically evaluate: “In comparing the two equilibrium positions in Figure 3.7b , I note that a smaller amount is actually demanded at a lower price. This refutes the law of demand.”
> What are the two characteristics of public goods? Explain the significance of each for public provision as opposed to private provision. What is the free-rider problem as it relates to public goods? Is U.S. border patrol a public good or a private good?
> Assume that demand for a commodity is represented by the equation P = 10 - .2Qd and supply by the equation P = 2 + .2Qs, where Qd and Qs are quantity demanded and quantity supplied, respectively, and P is price. Using the equilibrium condition Qs = Qd, s
> For each stock in the stock market, the number of shares sold daily equals the number of shares purchased. That is, the quantity of each firm’s shares demanded equals the quantity supplied. So, if this equality always occurs, why do the prices of stock s
> Evaluate and explain the following statements: a. The market system is a profit-and-loss system. b. Competition is the disciplinarian of the market economy.
> Explain the law of demand. Why does a demand curve slope downward? How a market demand curve is derived from individual demand curves?
> Suppose that C = a + bY , where C = consumption, a = consumption at zero income, b = slope, and Y = income. a. Are C and Y positively related or are they negatively related? b. If graphed, would the curve for this equation slope upward or slope downward
> Explain how (if at all) each of the following events affects the location of a country’s production possibilities curve: a. The quality of education increases. b. The number of unemployed workers increases. c. A new technique improves the efficiency of
> Look at Figure 1.3. Suppose that the cost of cheese falls, so that the marginal cost of producing pizza decreases. Will the MC curve shift up or down? Will the optimal amount of pizza increase or decrease?
> State (a) a positive economic statement of your choice, and then (b) a normative economic statement relating to your first statement.
> Use the distinction between the characteristics of private and public goods to determine whether the following should be produced through the market system or provided by government: a.French fries, b. Court systems c. Mail delivery d. Medical care. St
> A price ceiling will result in a shortage only if the ceiling price is ____________ the equilibrium price. a. less than b. equal to c. greater than d. louder than
> On the basis of the three individual demand schedules below, and assuming these three people are the only ones in the society, determine a. The market demand schedule on the assumption that the good is a private good and b. The collective demand schedule
> Why are spillover costs and spillover benefits also called negative and positive externalities? Show graphically how a tax can correct for a negative externality and how a subsidy to producers can correct for a positive externality. How does a subsidy to
> Suppose both the demand for olives and the supply of olives decline by equal amounts over some time period. Use graphical analysis to show the effect on equilibrium price and quantity.
> Assume the demand for lumber suddenly rises because of a rapid growth of demand for new housing. Assume no change in supply. Why does the equilibrium price of lumber rise? What would happen if the price did not rise under the demand and supply circumstan
> Suppose that in the market for computer memory chips, the equilibrium price is $50 per chip. If the current price is $55 per chip, then there will be ______________ of memory chips. a. A shortage. b. A surplus. c. An equilibrium quantity. d. None of the
> Decide whether each of the following descriptions most closely corresponds to being part of a command system, a market system, or a laissez-faire system. a. A woman who wants to start a flower shop finds she cannot do so unless the central government ha
> Use two market diagrams to explain how an increase in state subsidies to public colleges might affect tuition and enrollments in both public and private colleges.
> In 2001 an outbreak of foot-and-mouth disease in Europe led to the burning of millions of cattle carcasses. What impact do you think this had on the supply of cattle hides, hide prices, the supply of leather goods, and the price of leather goods?
> Identify each of the following quotes as being an example of either: the coordination problem, the invisible hand, creative destruction, or the incentive problem. a. "If you compare a list of today’s most powerful and profitable companies with a similar
> What problem does barter entail? Indicate the economic significance of money as a medium of exchange. What is meant by the statement “We want money only to part with it”?
> Use the table below to answer the questions that follow: a. If this table reflects the supply of and demand for tickets to a particular World Cup soccer game, what is the stadium capacity? b. If the preset ticket price is $45, would we expect to see a s
> Suppose that when the interest rate on loans is 16 percent, businesses find it unprofitable to invest in machinery and equipment. However, when the interest rate is 14 percent, $5 billion worth of investment is profitable. At 12 percent interest, a total
> For each of the following situations involving marginal cost (MC) and marginal benefit (MB), indicate whether it would be best to produce more, fewer, or the current number of units. a. 3,000 units at which MC = $10 and MB = $13. b. 11 units at which MC
> Below is a production possibilities table for consumer goods (automobiles) and capital goods (forklifts): a. Show these data graphically. Upon what specific assumptions is this production possibilities curve based? b. If the economy is at point C, what i
> What are the key elements of the scientific method and how does this method relate to economic principles and laws?
> Assume the following values for Figures 4.4a and 4.4b. Q1 = 20 bags. Q2 = 15 bags. Q3 = 27 bags. The market equilibrium price is $45 per bag. The price at a is $85 per bag. The price at c is $5 per bag. The price at f is $59 per bag. The price at g is $3
> What divergences arise between equilibrium output and efficient output when a. negative externalities and b. positive externalities are present? How might government correct these divergences? Cite an example (other than the text examples) of an exter
> Table 2.1 contains information on three techniques for producing $15 worth of bar soap. Assume “$15 worth of bar soap” means the selling price of soap is $3 per bar and all three techniques produce 5 bars of soap ($15
> Suppose that you are the economic advisor to a local government that has to deal with a politically embarrassing surplus that was caused by a price floor that the government recently imposed. Your first suggestion is to get rid of the price floor, but th
> Suppose the supply of apples sharply increases because of perfect weather conditions throughout the growing season. Assuming no change in demand, explain the effect on the equilibrium price and quantity of apples. Explain why quantity demanded increases
> Given the following two statements: A. In the corn market, demand often exceeds supply and supply sometimes exceeds demand. B. The price of corn rises and falls in response to changes in supply and demand. In which of these two statements are the terms
> What effect will each of the following have on the supply of auto tires? a. A technological advance in the methods of producing tires. b. A decline in the number of firms in the tire industry. c. An increase in the prices of rubber used in the product
> How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market; that is, do price and quantity rise, fall, or remain unchanged, or are the answers indeterminate because they depend
> What are the determinants of supply? What happens to the supply curve when any of these determinants changes? Distinguish between a change in supply and a change in the quantity supplied, noting the cause(s) of each.
> Assume that a business firm finds that its profit is greatest when it produces $40 worth of product A. Suppose also that each of the three techniques shown in the table below will produce the desired output. Resource units required a. With the resource p
> Let’s put dollar amounts on the flows in the circular flow diagram of Figure 2.2. a. Suppose that businesses buy a total of $100 billion of the four resources (labor, land, capital, and entrepreneurial ability) from households. If households receive $60
> What are the advantages of using capital in the production process? What is meant by the term “division of labor”? What are the advantages of specialization in the use of human and material resources? Explain why exchange is the necessary consequence of
> Construct a table from the data shown on the graph below. Which is the dependent variable and which the independent variable? Summarize the data in equation form. Graph for Problem 4 100 80 60 40 20 0 2 4 6. 8 10 Study time (hours) Exam score (points
> Suppose that you are given a $100 budget at work that can be spent only on two items: staplers and pens. If staplers cost $10 each and pens cost $2.50 each, then the opportunity cost of purchasing one stapler is: a. 10 pens. b. 5 pens. c. zero pens. d.
> Contrast how a market system and a command economy try to cope with economic scarcity.
> Suppose that you are on a desert island and possess exactly 20 coconuts. Your neighbor, Friday, is a fisherman, and he is willing to trade 2 fish for every 1 coconut that you are willing to give him. Another neighbor, Kwame, is also a fisherman, and he i
> What is meant by the term “utility” and how does the idea relate to purposeful behavior?
> Indicate whether each of the following relationships is usually a direct relationship or an inverse relationship. a. A sports team's winning percentage and attendance at its home games. b. Higher temperature and sweater sales. c. A person's income and
> Refer to the expanded table below from review question 8. a. What is the equilibrium price? At what price is there neither a shortage nor a surplus? Fill in the surplus-shortage column and use it to confirm your answers. b. Graph the demand for wheat an
> Explain the law of supply. Why does the supply curve slope upward? How is the market supply curve derived from the supply curves of individual producers?
> True or False: Money must be issued by a government for people to accept it.
> With current technology, suppose a firm is producing 400 loaves of banana bread daily. Also assume that the least-cost combination of resources in producing those loaves is 5 units of labor, 7 units of land, 2 units of capital, and 1 unit of entrepreneur
> Why is private property, and the protection of property rights, so critical to the success of the market system? How do property rights encourage cooperation?
> The following table contains data on the relationship between saving and income. Rearrange these data into a logical order and graph them on the accompanying grid. What is the slope of the line? The vertical intercept? Write the equation that represents
> Look back at Figure 2, which shows the inverse relationship between ticket prices and game attendance at Gigantic State University. (a) Interpret the meaning of both the slope and the intercept. (b) If the slope of the line were steeper, what would tha
> Suppose that you initially have $100 to spend on books or movie tickets. The books start off costing $25 each and the movie tickets start off costing $10 each. For each of the following situations, would the attainable set of combinations that you can af
> Suppose you won $15 on a lotto ticket at the local 7-Eleven and decided to spend all the winnings on candy bars and bags of peanuts. Candy bars cost $0.75 each while bags of peanuts cost $1.50 each. a. Construct a table showing the alternative combinati
> What is meant by the term “utility” and how does the idea relate to purposeful behavior?
