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Question: Air Supply issued $6 million of 9%,


Air Supply issued $6 million of 9%, 10-year convertible bonds at 101. The bonds are convertible into 24,000 shares of common stock. Bonds that are similar in all respects except that they are nonconvertible, currently are selling at 99 (that is, 99% of face amount). What amount should Air Supply record as equity and how much as a liability when the bonds are issued?


> What is an unadjusted trial balance? An adjusted trial balance?

> Define the terms paid-in-capital and retained earnings.

> Describe the events that correspond to the following two journal entries: 1. Inventory.. Accounts payable. 20,000 20,000 2. Accounts receivable 30,000 Sales revenue. Cost of goods sold. Inventory. 30,000 18,000 .... 18,000 ...*******.................

> Sherriane Baby Products’ salaries expense was $17 million. What is the amount of cash Sherriane paid to employees during the reporting period if its salaries payable increased by $3 million? Prepare a summary entry that represents the net effect of salar

> LaRoe Lawns’ inventory increased during the year by $6 million. Its accounts payable increased by $5 million during the same period. What is the amount of cash LaRoe paid to suppliers of merchandise during the reporting period if its cost of goods sold w

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> Horton Housewares’ accounts receivable decreased during the year by $5 million. What is the amount of cash Horton received from customers during the reporting period if its sales were $33 million? Prepare a summary entry that represents the net effect of

> Explain how each of the following liabilities would be classified in the balance sheet: A note payable of $100,000 due in five years A note payable of $100,000 payable in annual installments of $20,000 each, with the first installment due next year

> Where can we find authoritative guidance for the statement of cash flows under IFRS?

> Compare the manner in which investing activities are reported on a statement of cash flows prepared by the direct method and by the indirect method.

> Refer to the situation described in BE 20–10. Assume the error was discovered in 2020, after the 2019 financial statements are issued. Ignoring income taxes, what journal entry will PKE use to correct the error? In BE 20–10 In 2018, internal auditors di

> In 2018, Adonis Industries changed its method of valuing inventory from the average cost method to the FIFO method. At December 31, 2017, Adonis’s inventories were $47.6 million (average cost). Adonis’s records indicated that the inventories would have t

> With regard to the correction of accounting errors, what is the difference between U.S. GAAP and IFRS?

> For financial reporting, a reporting entity can be a single company, or it can be a group of companies that reports a single set of financial statements. When changes occur that cause the financial statements to be those of a different reporting entity,

> It’s not easy sometimes to distinguish between a change in principle and a change in estimate. In these cases, how should the change be accounted for?

> There are three basic accounting approaches to reporting accounting changes. What are they?

> On October 1, 2018, Farmer Fabrication issued stock options for 100,000 shares to a division manager. The options have an estimated fair value of $6 each. To provide additional incentive for managerial achievement, the options are not exercisable unless

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> Describe what is meant by posting, the fourth step in the processing cycle.

> If stock options and restricted stock are outstanding when calculating diluted EPS, what are the components of the “proceeds” available for the repurchase of shares under the treasury stock method?

> A convertible security may appear to be dilutive when looked at individually but might be antidilutive when included in combination with other convertible securities. How should the order be determined for inclusion of convertible securities in an EPS ca

> Distinguish between basic and diluted EPS.

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> Companies occasionally sell more than one security for a single price. How is the issue price allocated among the separate securities?

> How does the Model Business Corporation Act affect the way corporations operate?

> Distinguish between not-for-profit and for-profit corporations.

> Identify and briefly describe the two primary sources of shareholders’ equity.

> What is the primary objective of financial accounting?

> The components of postretirement benefit expense are similar to the components of pension expense. In what fundamental way does the service cost component differ between these two expenses?

> Which are the components of pension expense that involve delayed recognition?

> What two components of pension expense may be negative (i.e., reduce pension expense)?

> Define the interest cost component of the periodic pension expense.

> Define the service cost component of the periodic pension expense.

> Name three events that might change the balance of the plan assets.

> Name five events that might change the balance of the PBO.

> What is the vested benefit obligation?

> Java Hut leased a specialty expresso machine for a 10-year noncancelable term. At the end of the 10-year term, Java Hut has four consecutive one-year renewal options. A replacement machine can be acquired, but due to an expensive installation process and

> Manning Imports is contemplating an agreement to lease equipment to a customer for five years. Manning normally sells the asset for a cash price of $100,000. Assuming that 8% is a reasonable rate of interest, what must be the amount of quarterly lease pa

> If none of the adjusting journal entries prepared in BE 2–7 were recorded, would assets, liabilities, and shareholders’ equity on the 12/31/18 balance sheet be higher or lower and by how much?

> Corinth Co. leased nonspecialized equipment to Athens Corporation for an eight-year period, at which time possession of the equipment will revert back to Corinth. The equipment cost Corinth $16 million and has an expected useful life of 12 years. Its nor

> What is the primary objective of the required lease disclosures for the lessor and lessee?

> A lease that has a lease term (including any options to terminate or renew that are reasonably certain) of twelve months or less is considered a “short-term lease.” How does a lessee record a lease using the short-cut approach available as an option for

> At the beginning of an operating lease, the lessee will record what asset and liability, if any?

> Zimmern Machines sold equipment with a 10-year economic life to Bourdain Acres, while concurrently entering into an 8-year leaseback. Eight years is considered a major part of the economic life of the equipment. The sale agreement contains no option for

> Where can we find authoritative guidance for accounting for leases under IFRS?

> On January 1, a company issued 7%, 15-year bonds with a face amount of $90 million for $82,218,585 to yield 8%. Interest is paid semiannually. What was interest expense at the effective interest rate on June 30, the first interest date?

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> Identify two important variables to be considered when making an investment decision.

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> Fleener Company is in the process of refinancing some long-term debt. Its fiscal year ends on December 31, 2016, and its financial statements will be issued on March 15, 2019. Under current IFRS, how would the debt be classified if the refinancing is com

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> When companies have debt that is not due to be paid for several years but that is callable (due on demand) by the creditor, do they classify the debt as current or as long-term?

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> Under what circumstances should a loss contingency be accrued?

> Northwest Carburetor Company established a fund in 2015 to accumulate money for a new plant scheduled for construction in 2018. How should this special purpose fund be reported in Northwest’s balance sheet?

> Some financial instruments are called derivatives. Why?

> Superior Company owns 40% of the outstanding stock of Bernard Company. During 2018, Bernard paid a $100,000 cash dividend on its common shares. What effect did this dividend have on Superior’s 2018 financial statements?

> All investments in debt securities are classified for reporting purposes in one of three categories, and can be accounted for differently depending on the classification. What are these three categories?

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> Under U.S. GAAP, litigation costs to successfully defend an intangible right are capitalized and amortized over the remaining useful life of the related intangible. How are these costs typically accounted for under IFRS?

> Define depletion and compare it with depreciation.

> In February 2018, Culverson Company began developing a new software to be sold to customers. The software allows people to enter health information and track daily eating and exercise habits to track their health status. The project was completed in Nove

> What is meant by the phrase efficient allocation of resources? What mechanism fosters the efficient allocation of resources in the United States?

> Indicate whether each of the following assets and liabilities should be classified as current or long-term: (a) accounts receivable; (b) prepaid rent for the next six months; (c) note receivable due in two years; (d) note payable due in 90 days; (e)

> What are the three major sections of the statement of cash flows?

> What is GATT, and what is its goal?

> What are some of the primary advantages when a corporation has operations in countries other than its home country? What are some of the risks?

> What kinds of U.S. companies would benefit most from a stronger dollar in the foreign exchange market? Explain.

> What does it mean when the U.S. dollar weakens in the foreign exchange market?

> What are the pros and cons of commercial paper relative to bank loans for a company seeking short term financing?

> What are compensating balances and why do banks require them from some customers? Under what circumstances would banks be most likely to impose compensating balances?

> What is a Treasury bill? How risky is it?

> Banks like to make short-term, self-liquidating loans to businesses. Why?

> Trade credit is free credit. Do you agree or disagree with this statement? Explain.

> What is trustworthy collateral from the lenders’ perspective? Explain whether accounts receivable and inventory are trustworthy collateral.

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> Companies with rapidly growing levels of sales do not need to worry about raising funds from outside the firm. Do you agree or disagree with this statement? Explain.

> What are the primary requirements for a successful JIT inventory control system?

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> Inventory is sometimes thought of as a necessary evil. Explain.

> Accounts receivable are sometimes not collected. Why do companies extend trade credit when they could insist on cash for all sales?

> What is an agent? What are the responsibilities of an agent?

> How does accounts receivable factoring work? What are the benefits to the two parties involved? What are the risks?

> What are the benefits of “paying late” (but not too late) and how do companies attempt to do this?

> What are the benefits of “collecting early” and how do companies attempt to do this?

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> Explain the factors affecting the choice of a maximum cash balance amount.

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> Explain the factors affecting the choice of a minimum cash balance amount.

2.99

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