Question: Why would a company choose to distribute

> Mack Company plans to invest $50,000 in land that will produce annual rent revenue equal to 15 percent of the investment, starting on January 1, 2016. The revenue will be collected in cash at the end of each year, starting December 31, 2016. Mack can obt

> Milan Company issued bonds with a face value of $200,000 on January 1, Year 1. The bonds had a 7 percent stated rate of interest and a six-year term. The bonds were issued at face value. Interest is payable on an annual basis. Required: Write a memo exp

> Nivan Co. issued $500,000 of 5 percent, 10-year, callable bonds on January 1, Year 1, at their face value. The call premium was 3 percent (bonds are callable at 103). Interest was payable annually on December 31. The bonds were called on December 31, Yea

> On January 1, Year 1, Bell Corp. issued $180,000 of 10-year, 6 percent bonds at their face amount. Interest is payable on December 31 of each year with the first payment due December 31, Year 1. Required: Prepare all the general journal entries related

> Doyle Company issued $500,000 of 10-year, 7 percent bonds on January 1, Year 1. The bonds were issued at face value. Interest is payable in cash on December 31 of each year. Doyle immediately invested the proceeds from the bond issue in land. The land wa

> Singer Company has a line of credit with United Bank. Singer can borrow up to $400,000 at any time over the course of the Year 1 calendar year. The following table shows the prime rate expressed as an annual percentage along with the amounts borrowed and

> A partial amortization schedule for a 10-year note payable issued on January 1, Year 1, is shown next: Required: a. Using a financial statements model like the one shown next, record the appropriate amounts for the following two events: (1) January 1,

> Dan Dayle started a business by issuing an $80,000 face-value note to First State Bank on January 1, Year 1. The note had an 8 percent annual rate of interest and a five-year term. Payments of $20,037 are to be made each December 31 for five years. Requ

> On January 1, Year 1, Beatie Co. borrowed $200,000 cash from Central Bank by issuing a five year, 6 percent note. The principal and interest are to be paid by making annual payments in the amount of $47,479. Payments are to be made December 31 of each ye

> Compute the specified ratios using Duluth Company’s balance sheet for Year 3: The average number of common stock shares outstanding during Year 3 was 880 shares. Net income for the year was $40,000. Required: Compute each of the foll

> During Year 3, Blue Ridge Corporation reported after-tax net income of $4,150,000. During the year, the number of shares of stock outstanding remained constant at 15,000 of $100 par, 9 percent preferred stock and 400,000 shares of common stock. The compa

> The following data are for the 2016 fiscal year of Alphabet, Inc., which is the parent company of Google, Inc., and Facebook, Inc. All dollar amounts are in thousands. Required: a. Calculate the EBIT for each company. b. Calculate each companyâ&#

> The December 31, Year 4, balance sheet for Burdette Corporation is presented here. These are the only accounts on Burdette’s balance sheet. Amounts indicated by question marks (?) can be calculated using the following additional informa

> On June 30, Year 3, Franza Company’s total current assets were $900,000 and its total current liabilities were $360,000. On July 1, Year 3, Franza issued a short-term note to a bank for $72,000 cash. Required: a. Compute Franza’s working capital before

> Income statements for Burch Company for Year 3 and Year 4 follow: Required: Round all percentages to one decimal point. a. Perform a horizontal analysis, showing the percentage change in each income statement component between Year 3 and Year 4. b. Per

> On January 1, Year 1, Bacco Company had a balance of $72,350 in its Delivery Equipment account. During Year 1, Bacco purchased delivery equipment that cost $22,100. The balance in the Delivery Equipment account on December 31, Year 1, was $69,400. The Ye

> On January 1, Year 1, Shelton Company had a balance of $325,000 in its Land account. During Year 1, Shelton sold land that had cost $106,500 for $132,000 cash. The balance in the Land account on December 31, Year 1, was $285,000. Required: a. Determine

> The following accounts and corresponding balances were drawn from Jogger Company’s Year 2 and Year 1 year-end balance sheets: The Year 2 income statement is shown next: Required: a. Prepare the operating activities section of the st

> Expert Electronics, Inc. (EEI) recognized $3,800 of sales revenue on account and collected $2,100 of cash from accounts receivable. Further, EEI recognized $900 of operating expenses on account and paid $700 cash as partial settlement of accounts payable

> The following accounts and corresponding balances were drawn from Marinelli Company’s Year 2 and Year 1 year-end balance sheets: The Year 2 income statement is shown next: Required: a. Use the direct method to compute the amount of c

> The following accounts and corresponding balances were drawn from Avia Company’s Year 2 and Year 1 year-end balance sheets: During the year, $46,000 of unearned revenue was recognized as having been earned. Rent expense for Year 2 was

> Shim Company presents its statement of cash flows using the indirect method. The following accounts and corresponding balances were drawn from Shim’s Year 2 and Year 1 yearend balance sheets: The income statement reported a $1,500 gai

> Bojangels’, Inc. operates Cajun-themed fast-food restaurants. As of December 25, 2016, Bojangels’ had 309 company operated restaurants and 404 domestic franchised restaurants located in 11 states, and 3 franchised rest

> Alfonza Incorporated presents its statement of cash flows using the indirect method. The following accounts and corresponding balances were drawn from the company’s Year 2 and Year 1 year-end balance sheets: The Year 2 income statemen

> The following accounts and corresponding balances were drawn from Dexter Company’s Year 2 and Year 1 year-end balance sheets: Other information drawn from the accounting records: 1. Dividends paid during the period amounted to $50,000

> On January 1, Year 1, Hardy Company had a balance of $150,000 in its Common Stock account. During Year 1, Hardy paid $20,000 to purchase treasury stock. Treasury stock is accounted for using the cost method. The balance in the Common Stock account on Dec

> On January 1, Year 1, DIBA Company had a balance of $450,000 in its Bonds Payable account. During Year 1, DIBA issued bonds with a $200,000 face value. There was no premium or discount associated with the bond issue. The balance in the Bonds Payable acco

> The following accounts and corresponding balances were drawn from Delsey Company’s Year 2 and Year 1 year-end balance sheets: Other information drawn from the accounting records: 1. Delsey incurred a $6,000 loss on the sale of investm

> Eastport Inc. was organized on June 5, Year 1. It was authorized to issue 300,000 shares of $10 par common stock and 50,000 shares of 5 percent cumulative class A preferred stock. The class A stock had a stated value of $50 per share. The following stock

> When Crossett Corporation was organized in January Year 1, it immediately issued 4,000 shares of $50 par, 6 percent, cumulative preferred stock and 50,000 shares of $20 par common stock. Its earnings history is as follows: Year 1, net loss of $35,000; Ye

> The stockholders’ equity section of Creighton Company’s balance sheet is shown as follows: Required: a. Assuming the preferred stock was originally issued for cash, determine the amount of cash that was collected whe

> Enscoe Enterprises, Inc. (EEI) has 225,000 shares authorized, 150,000 shares issued, and 30,000 shares of treasury stock. At this point, EEI has $780,000 of assets. $180,000 liabilities, $360,000 of common stock, and $240,000 of retained earnings. Furthe

> Faith Busby and Jeremy Beatty started the B&B partnership on January 1, Year 1. The business acquired $44,000 cash from Busby and $66,000 from Beatty. During Year 1, the partnership earned $42,000 in cash revenues and paid $18,400 for cash expenses. Busb

> Advance Auto Parts, Inc. is “a leading automotive aftermarket parts provider in North America. We were founded in 1929 as Advance Stores Company. As of January 2, 2016, we operated 5,171 total stores and 122 branches primarily under the

> Write a memo explaining why one company’s P/E ratio may be higher than another company’s P/E ratio.

> Lake Inc. and River, Inc. reported net incomes of $800,000 and $1,000,000, respectively, for the most recent fiscal year. Both companies had 200,000 shares of common stock issued and outstanding. The market price per share of Lake’s stock was $50, while

> Discount Drugs (one of the three largest drug makers) just reported that its Year 2 third-quarter profits are essentially the same as the Year 1 third-quarter profits. In addition to this announcement, the same day, Discount Drugs also announced that the

> On May 1, Year 1, Love Corporation declared a $50,000 cash dividend to be paid on May 31 to shareholders of record on May 15. Required: a. Record the events occurring on May 1, May 15, and May 31 in a horizontal statements model like the following one.

> What is the concept of financial leverage?

> Does depreciation expense affect net cash flow? Explain.

> What is the difference between return on investment and return on equity?

> What is the function of the stock certificate?

> What environmental factors must be considered in analyzing companies?

> What is meant by the phrase separate legal entity? To which type of business organization does it apply?

> What is the difference between par value stock and stated value stock?

> Clayton Industries has the following account balances: The company wishes to raise $40,000 in cash and is considering two financing options: Clayton can sell $40,000 of bonds payable, or it can issue additional common stock for $40,000. To help in the

> In which section of the statement of cash flows would the following transactions be reported? (a) The amount of the change in the balance of accounts receivable. (b) Cash purchase of investment securities. (c) Cash purchase of equipment. (d) Cash sale of

> What information does the times-interest-earned ratio provide?

> What is the advantage of using the direct method to present the statement of cash flows?

> Which method of financing, debt or equity, is generally more advantageous from a tax standpoint? Why?

> Rato Co. called some bonds and had a loss on the redemption of the bonds of $2,850. How is this amount reported on the income statement?

> Why is it easier for a corporation to raise large amounts of capital than it is for a partnership?

> What is the purpose of establishing a sinking fund?

> What is the major advantage of using the indirect method to present the statement of cash flows?

> What is the function of restrictive covenants attached to bond issues?

> The following information is available for three companies: Required: a. Determine the annual before tax interest cost for each company in dollars. b. Determine the annual after tax interest cost for each company in dollars. c. Determine the annual aft

> Which type of bond, secured or unsecured, is likely to have a lower interest rate? Explain.

> Match each of the following ratios with its formula: a. Total liabilities + Total stockholders' equity 1. Price-earnings ratio 2. Dividend yleld 3. Book value per share 4. Plant assets to long-term liabilities b. Current assets + Current llablitles

> Selected data from Goode Company follow: Required: Compute the following and round computations to two decimal points: a. The accounts receivable turnover for Year 4. b. The inventory turnover for Year 4. c. The net margin for Year 3. Balance Shee

> The following data come from the financial records of Welch Corporation for Year 3: Required: How many times was interest earned in Year 3? Sales $320,000 Interest expense 9,000 36,000 Income tax Net income 99,000

> For each of the following situations, calculate the amount of bond discount or premium, if any: a. Jones Co. issued $120,000 of 6 percent bonds at 101. b. Jude, Inc. issued $80,000 of 10-year, 8 percent bonds at 98. c. James, Inc. issued $200,000 of 15-y

> In each of the following situations, state whether the bonds will sell at a premium or discount: a. Carver issued $400,000 of bonds with a stated interest rate of 7 percent. At the time of issue, the market rate of interest for similar investments was 6

> Required Indicate whether a bond will sell at a premium (P), discount (D), or face value (F) for each of the following conditions: a. ____ The stated rate of interest is less than the market rate. b. ____ The market rate of interest is equal to the state

> For each of the following situations, calculate the amount of bond discount or premium, if any: a. Gray Co. issued $80,000 of 6 percent bonds at 101¼. b. Bush, Inc. issued $200,000 of 10-year, 6 percent bonds at 97½. c. Oak, Inc. issued $100,000 of 20-ye

> In each of the following situations, state whether the bonds will sell at a premium or discount: a. Valley issued $300,000 of bonds with a stated interest rate of 7 percent. At the time of issue, the market rate of interest for similar investments was 6

> Required: Indicate whether a bond will sell at a premium (P), discount (D), or face value (F) for each of the following conditions: a. ____ The stated rate of interest is higher than the market rate. b. ____ The market rate of interest is equal to the st

> The trial balance of Pacilio Security Services, Inc. as of January 1, Year 11, had the following normal balances: During Year 11, Pacilio Security Services experienced the following transactions: 1. Paid the sales tax payable from Year 10. 2. Paid the

> On October 31, Year 4, Corona Company’s total current assets were $160,000 and its total current liabilities were $40,000. On November 1, Year 4, Corona bought manufacturing equipment for $20,000 cash. Required: a. Compute Corona’s working capital befor

> Selected financial information for Purdy Company for Year 4 follows: Assuming that the merchandise inventory buildup was relatively constant, how many times did the merchandise inventory turnover during Year 4? $3,200,000 2,100,000 Sales Cost of go

> Selected financial information for Edwards Company for Year 4 follows: Required: Assuming that the merchandise inventory buildup was relatively constant, how many times did the merchandise inventory turn over during Year 4? Sales $800,000 Cost of g

> The following data come from the financial records of Fargo Corporation for Year 3: Required: How many times was interest earned in Year 3? $640,000 6,000 12,000 Sales Interest expense Income tax expense Net Income 42,000

> On June 30, Year 3, Franza Company’s total current assets were $900,000 and its total current liabilities were $360,000. On July 1, Year 3, Franza issued a long-term note to a bank for $72,000 cash. Required: Round computations to one decimal point. a.

> Swartz Corporation wrote off a $1,600 uncollectible account receivable against the $48,000 balance in its allowance account. Required: Explain the effect of the write-off on Swartz’s current ratio.

> In Statement of Financial Accounting Standards No. 95, the Financial Accounting Standards Board (FASB) recommended but did not require that companies use the direct method. In Appendix B, Paragraphs 106–121, the FASB discussed its reasons for this recomm

> What is apparent from a horizontal presentation of financial statement information? A vertical presentation?

> Which of the following activities are financing activities? (a) Payment of accounts payable. (b) Payment of interest on bonds payable. (c) Sale of common stock. (d) Sale of preferred stock at a premium. (e) Payment of a cash dividend.

> What is the purpose of the articles of incorporation? What information do they provide?

> The trial balance of Pacilio Security Services, Inc. as of January 1, Year 10, had the following normal balances: During Year 10, Pacilio Security Services experienced the following transactions: 1. Paid the sales tax payable from Year 9. 2. Paid the b

> Forsyth Company had a beginning balance in utilities payable of $3,300 and an ending balance of $5,200. Net income amounted to $87,000. Based on this information alone, determine the amount of net cash flow from operating activities.

> Albring Company had a beginning balance in accounts receivable of $12,000 and an ending balance of $14,000. Net income amounted to $110,000. Based on this information alone, determine the amount of net cash flow from operating activities.

> What are the three categories of cash flows reported on the cash flow statement? Discuss each and give an example of an inflow and an outflow for each category.

> What are the three major forms of business organizations? Describe each.

> Which type of financing, debt or equity, increases the risk factor of a business? Why?

> If a company has a tax rate of 30 percent, and interest expense was $10,000, what is the after-tax cost of the debt?

> Assuming that the selling price of the bond and the face value are the same, would the issuer of a bond prefer to make annual or semiannual interest payments? Why?

> How do accounting principles affect financial statement analysis?

> If Best Company sold office equipment that originally cost $7,500 and had $7,200 of accumulated depreciation at a $100 loss, what was the selling price for the office equipment?

> What is the meaning of each of the following terms with respect to the corporate form of organization? (a) Legal capital (b) Par value of stock (c) Stated value of stock (d) Market value of stock (e) Book value of stock (f) Authorized shares of stock (g)

> In 2012, Duke Energy, a large utility company with its headquarters in North Carolina, completed its $32 billion acquisition of Progress Energy. To get an idea of the size of this deal, in 2011 Duke Energy reported revenues of $14.5 billion. In 2012, wit

> What is the call price of a bond? Is it usually higher or lower than the face amount of the bond? Explain.

> Clover Company had a beginning balance in unearned revenue of $4,300 and an ending balance of $3,200. Net income amounted to $54,000. Based on this information alone, determine the amount of net cash flow from operating activities.

> Can a company report negative net cash flows from operating activities for the year on the statement of cash flows but still have positive net income on the income statement? Explain.

> How would Best Company report the following transactions on the statement of cash flows? (a) Purchased new equipment for $46,000 cash. (b) Sold old equipment for $8,700 cash. The equipment had a book value of $4,900.

> Which method (direct or indirect) of presenting the statement of cash flows is more intuitively logical? Why?

> What is the difference between preparing the statement of cash flows using the direct method and using the indirect method?

> What effect does income tax have on the cost of borrowing funds for a business?

> If Best Company sold land that cost $4,200 at a $500 gain, how much cash did it collect from the sale of land?

> The following information was drawn from the year-end balance sheets of Long’s Wholesale, Inc.: Additional information regarding transactions occurring during Year 2: 1. Long’s Wholesale, Inc. issued $90,000 of bonds

> The following information was drawn from the year-end balance sheets of Vigotti Company: Additional information regarding transactions occurring during Year 2: 1. Investment securities that had cost $11,300 were sold. The Year 2 income statement contai

> Presented here are selected data from the 10-K reports of four companies for their 2015 fiscal years. The four companies, in alphabetical order, are: Caterpillar, Inc., a company that manufactures heavy machinery. Oracle Corporation, a company that devel