Question: On June 30, 2011, Slick Books, Inc.,

> Under the equity method, why does the investor company measure revenue on a proportionate basis when income is reported by the affiliate company rather than when dividends are declared?

> Explain the application of the cost principle to the purchase of capital stock in another company.

> The Mira Vista Company issued $500,000 in bonds at a discount five years ago. The current book value of the bonds is $475,000. The company now has excess cash on hand and plans to retire the bonds. The company must pay a 7 percent (of par) call premium t

> On August 4, 2012, Glenn Corporation purchased 3,000 shares of Riley Company for $150,000. The following information applies to the stock price of Riley Company: Price 12/31/2012 ...................$57 12/31/2013 ......................51 12/31/2014 ....

> During January 2011, Pareto Glass Company purchased the following securities as its long-term securities available for sale investment portfolio: D Corporation Common Stock: 11,000 shares (95,000 outstanding) at $9 per share F Corporation Bonds: $300,00

> Below are selected T-accounts for the RunnerTech Company. Required: Complete the following journal entries and answer the following questions: a. Purchased securities available for sale for cash. Prepare the journal entry. b. Received cash dividends on

> On March 1, 2011, Lightning Technology purchased 8,000 shares of Computing Services Company for $17 per share. The following information applies to the stock price of Computing Services: Price 12/31/2011........................... $15 12/31/2012........

> Starbucks is a global company that provides high-quality coffee products. Assume that as part of itsexpansion strategy, Starbucks plans to open numerous new stores in Mexico in three years. The companyhas $7 million to support the expansion and has decid

> Verizon Communications Inc. was formed by the merger of Bell Atlantic Corporation and GTE Corporationin 2000. It is the largest provider of wireline and wireless communication services in the UnitedStates, with a presence in over 150 other countries. The

> On January 4, 2011, D’Angelo Company acquired all of the net assets (assets and liabilities) of Barato Company for $124,000 cash. The two companies merged, with D’Angelo Company surviving. On the date of acquisition, Barato’s balance sheet included the f

> During 2011, Bradford Company purchased some of the 90,000 shares of common stock, par $6, of Hall,Inc., as a long-term investment. The annual accounting period for each company ends December 31. Thefollowing transactions occurred during 2011: Jan. 7 Pu

> Below are selected T-accounts for Gauge Company. Required: Complete the following journal entries and answer the following questions: a. Purchased additional investments in affiliated companies for cash. Prepare the journal entry. b. Received cash divi

> Cruise Corporation had outstanding 100,000 shares of no-par common stock. On January 10, 2011, DockCompany purchased a block of these shares in the open market at $20 per share for long-term investmentpurposes. At the end of 2011, Cruise reported net inc

> Several years ago, Walters Company issued a $600,000 bond at par value. As a result of declining interest rates, the company has decided to call the bond at a call premium of 5 percent. Record the retirement of the bonds.

> Company T had outstanding 25,000 shares of common stock, par value $10 per share. On January 1, 2011, Company P purchased some of these shares as a long-term investment at $25 per share. At the end of 2011, Company T reported the following: income, $45,0

> Company W purchases 10 percent of Company Z and Company W intends to hold the stock for at least five years. At the end of the current year, how would Company W’s investment in Company Z be reported on Company W’s December 31 (year-end) balance sheet? a.

> Company X owns 40 percent of Company Y and exercises significant influence over the management of Company Y. Therefore, Company X uses what method of accounting for reporting its ownership of stock in Company Y? a. The amortized cost method. b. The equit

> Lamichael Company purchased 100 percent of the outstanding voting shares of Darrell Corporation in the open market for $200,000 cash and Darrell was merged into Lamichael Company. On the date of acquisition, the fair value of Darrell Corporation’s proper

> Which of the following is true regarding the economic return from investing ratio? a. This ratio is used to evaluate how efficiently a company manages its total assets. b. This ratio is used to evaluate the efficiency of a company given the capital contr

> Bott Company acquired 500 shares of stock of Barus Company at $50 per share as a long-term investment. This represents 40 percent of the outstanding voting shares of Barus. During the year, Barus paid stockholders $2 per share in dividends. At year-end,

> Bott Company acquired 500 shares of stock of Barus Company at $50 per share as a long-term investment. This represents 10 percent of the outstanding voting shares of Barus. During the year, Barus paid stockholders $2 per share in dividends. At year-end,

> When using the equity method of accounting, when is revenue recorded on the books of the investor company? a. When a dividend is received from the affiliate. b. When the fair value of the affiliate stock increases. c. When the affiliate company reports n

> When recording dividends received from a stock investment accounted for using the equity method, which of the following statements is true? a. Total assets are increased and net income is increased. b. Total assets are increased and total stockholders’ e

> Realized gains and losses are recorded on the income statement for which of the following transactions in trading securities and available-for-sale securities? a. When adjusting a trading security to its fair value. b. Only when recording the sale of a t

> Gateway Company issued a $1 million bond that matures in 10 years. The bond has a 10 percent stated rate of interest. When the bond was issued, the market rate was 8 percent. The bond pays interest eachsix months. Record the issuance of the bond on June

> Dividends received from stock that is reported as a security available for sale in the long-term assets section of the balance sheet are reported as which of the following? a. An increase to cash and a decrease to the investment in stock account. b. An i

> The Walt Disney Company owns theme parks, movie studios, television and radio stations, newspapers, and television networks, including ABC and ESPN. Its balance sheet recently reported goodwill in the amount of $22 billion, which is more than 35 percent

> Ceiling Company purchased $1,300,000, 8 percent bonds issued by Melissa Company on January 1, 2011. The purchase price of the bonds was $1,350,000. Interest is payable semiannually each June 30 and December 31. Record the purchase of the bonds on January

> Match the following. Answers may be used more than once: Measurement Method A. Amortized cost 1. Less than 20 percent ownership. B. Equity method C. Purchase method and consolidation 2. Current fair value. 3. More than 50 percent ownership. 4. At le

> N.M.S. Company held securities available for sale and reported the following information at the end of each year: Compute the economic return from investing ratio for 2012, 2013, and 2014. What do the results suggest about N.M.S. Company? Ending Fa

> England Textile Company acquired Belgium Fabric Company for $660,000 cash when Belgium’s only assets, property and equipment, had a book value of $660,000 and a fair value of $750,000. England also assumed Belgium’s bonds payable of $175,000. After the m

> Using the following categories, indicate the effects of the transactions listed in M12-7. Use + for increaseand − for decrease and indicate the amounts. Data from M12-7. On January 1, 2011, PurchaseAgent.com acquired 30 percent (1,200,

> On January 1, 2011, PurchaseAgent.com acquired 30 percent (1,200,000 shares) of the common stock of E-Transaction Corporation. The accounting period for both companies ends December 31. Give the journal entries for each of the following transactions that

> Using the following categories, indicate the effects of the transactions listed in M12-3 assuming the securities are trading securities. Use + for increase and − for decrease and indicate the amounts. Data from M12-3 During 2011, Yale

> Using the following categories, indicate the effects of the transactions listed in M12-3 assuming the securities are available for sale. Use + for increase and − for decrease and indicate the amounts. Data from M12-3 During 2011, Yale

> Denver Corporation sold a $300,000, 6 percent bond issue on January 1, 2011, at a market rate of 3 percent. The bonds were dated January 1, 2011, with interest to be paid each December 31; they mature in 10 years. The company uses the straight-line metho

> On January 1, 2011, Bidden Corporation sold and issued $100,000, five-year, 10 percent bonds. The bond interest is payable each June 30 and December 31. Assume three separate and independent selling scenarios: Case A, at par; Case B, at 95; and Case C, a

> Using the data in M12-3, assume that Yale Company purchased the voting stock of Carol Corporation for the trading securities portfolio instead of the available-for-sale securities portfolio. Give the journal entries for each of the transactions listed.

> During 2011, Yale Company acquired some of the 50,000 outstanding shares of the common stock, par $12, of Carol Corporation as available-for-sale investments. The accounting period for both companies ends December 31. Give the journal entries for each of

> Using the data in E12-7, answer the following questions. Required: 1. On the current year cash flow statement, how would the investing section of the statement be affected by the preceding transactions? 2. On the current year cash flow statement (indire

> Company A purchased a certain number of Company B’s outstanding voting shares at $20 per share as a long-term investment. Company B had outstanding 20,000 shares of $10 par value stock. Complete the following table relating to the measu

> Macy’s, Inc., operates over 850 Macy’s and Bloomingdale’s department stores nationwide. The company does more than $24 billion in sales each year. Assume that as part of its cash management strategy, Macy’s purchased $10 million in bonds at par for cash

> Kukenberger, Inc., reported the following in its portfolio of securities available for sale: Required: 1. Determine the economic return from investing ratio for the years 2011, 2012, and 2013. 2. What do your results suggest about Kukenbergerâ&#1

> The notes to recent financial statements of Colgate-Palmolive contained the following information(dollar amounts in millions): Assume that Colgate-Palmolive acquired 100 percent of the fair value of the net assets of Tom’s ofMaine in

> Gioia Company acquired some of the 65,000 shares of outstanding common stock (no par) of Tristezza Corporation during 2011 as a long-term investment. The annual accounting period for both companies ends December 31. The following transactions occurred du

> Using the data in E12-5, assume that Patton management purchased the Eisenhower stock for the trading securities portfolio instead of the available-for-sale securities portfolio. Prepare any journal entries that are required by the facts presented in the

> On March 10, 2011, Patton, Inc., purchased 10,000 shares of Eisenhower stock for $48 per share. Management recorded it in the securities available for sale portfolio. The following information pertains to the price per share of Eisenhower stock: Price 1

> Houston Company issued a $10,000, three-year, 5 percent bond on January 1, 2011. The bond interest ispaid each December 31. The bond was sold to yield 4 percent. Required: 1. Complete a bond amortization schedule. Use the effective-interest method. 2. W

> Using the data in E12-3, assume that Slick Books management purchased the Syntax stock for the trading securities portfolio instead of the securities available for sale portfolio. Prepare any journal entries that are required by the facts presented in th

> Diageo is a major international company located in London, best known for its Smirnoff, JohnnieWalker, and Bailey’s brands of spirits. Its financial statements are accounted for under IFRS. A recentannual report contained the following information concer

> On January 1, 2012, Sheena Company purchased 30 percent of the outstanding common stock of Maryn Corporation at a total cost of $660,000. Management intends to hold the stock for the long term. On the December 31, 2012, balance sheet, the investment in M

> Assume that you are on the board of directors of a company that has decided to buy 80 percent of the outstanding stock of another company within the next three or four months. The discussions have convinced you that this company is an excellent investmen

> Assume that you are a financial analyst for a large investment banking firm. You are responsible for analyzing companies in the retail sales industry. You have just learned that a large West Coast retailer has acquired a large East Coast retail chain for

> Refer to the financial statements of Urban Outfitters in Appendix C at the end of this book. Required: 1. What is the balance in short-term and long-term marketable securities reported by the company on January 31, 2009? What types of securities are inc

> Refer to the financial statements of American Eagle Outfitters in Appendix B at the end of this book. Required: 1. What types of securities are included in the short-term investments and the long-term investments reported on the company’s balance sheet

> During January 2011, Pentagon Company purchased 12,000 shares of the 200,000 outstanding common shares (no-par value) of Square Corporation at $25 per share. This block of stock was purchased as a long-term investment. Assume that the accounting period f

> On September 15, 2011, Hill-Nielson Corporation purchased 7,000 shares of Community Communications Company for $32 per share. The following information applies to the stock price of Community Communications: Price 12/31/2011 ............................

> Using data from the previous exercise, complete each of the requirements in Exercise 10-17 without using a premium account. Data from Exercise 10-17 On January 1, 2011, Frog Corporation sold a $2,000,000, 10 percent bond issue (8.5 percent market rate).

> Sonic Corp. operates and franchises a chain of quick-service drive-in restaurants in most of the United States and in Mexico. Customers drive up to a canopied parking space and order food through an intercom speaker system. A carhop then delivers the foo

> Selma International, Inc., reported the following information regarding its investment portfolio in the company’s 2012 annual report: Required: 1. Compute the economic return from investing ratio for 2012. 2. What do the results in re

> On June 1, 2011, Gamma Company acquired all of the net assets of Pi Company for $140,000 cash. The two companies merged, with Gamma Company surviving. On the date of acquisition, Pi Company’s balance sheet included the following: Balance Sheet at June 1

> For each of the transactions in AP12-4, indicate how the operating activities and investing activities sections of the cash flow statement (indirect method) will be affected. Information from AP12-4 Cardinal Company purchased, as a long-term investment,

> Cardinal Company purchased, as a long-term investment, some of the 200,000 shares of the outstanding common stock of Arbor Corporation. The annual accounting period for each company ends December 31. The following transactions occurred during 2012: Jan.

> What is the charter of a corporation?

> Owners’ equity is accounted for by source. What does source mean?

> What are the usual characteristics of preferred stock?

> Differentiate between common stock and preferred stock.

> Explain each of the following terms: (a) authorized capital stock, (b) issued capital stock, and (c) outstanding capital stock.

> On January 1, 2011, Frog Corporation sold a $2,000,000, 10 percent bond issue (8.5 percent market rate). The bonds were dated January 1, 2011, pay interest each June 30 and December 31, and mature in 10 years. Required: 1. Give the journal entry to reco

> Define the term corporation and identify the primary advantages of this form of business organization.

> Define retained earnings. What are the primary components of retained earnings at the end of each period?

> Identify and explain the three important dates with respect to dividends.

> What are the primary reasons for issuing a stock dividend?

> Define stock dividend. How does a stock dividend differ from a cash dividend?

> Differentiate between cumulative and noncumulative preferred stock.

> What are the two basic requirements to support the declaration of a cash dividend? What are the effects of a cash dividend on assets and stockholders’ equity?

> How is treasury stock reported on the balance sheet? How is the “gain or loss” on treasury stock that has been sold reported on the financial statements?

> Define treasury stock. Why do corporations acquire treasury stock?

> What are the two basic sources of stockholders’ equity? Explain each.

> On January 1, 2011, Victor Corporation sold a $1,400,000, 8 percent bond issue (6 percent market rate). The bonds were dated January 1, 2011, pay interest each June 30 and December 31, and mature in four years. Required: 1. Give the journal entry to rec

> Explain the distinction between par value and no-par value capital stock.

> 1. Compare a stock dividend with a cash dividend. 2. Compare a large stock dividend with a small stock dividend. 3. Describe the impact of the sale of treasury stock for more than cost on the income statement and the statement of cash flows. 4. Explain w

> Tim Hortons restaurants operate in a variety of formats. A standard Tim Hortons restaurant is a freestanding building typically ranging in size from 1,400 to 3,090 square feet with a dining room and single or double drive-thru window. The Company also ha

> United Resources Company obtained a charter from the state in January 2011, which authorized 200,000 shares of common stock, $1 par value. During the first year, the company earned $475,000 and the following selected transactions occurred in the order gi

> The following press release was issued by Haynes International: NEW YORK, March 19 (Reuters)—Haynes International Inc., a producer of high-performance nickel and cobalt-based alloys, on Monday raised $136.5 million with a U.S. initial public offering th

> King Corporation began operations in January 2011. The charter authorized the following capital stock: Preferred stock: 10 percent, $10 par, authorized 40,000 shares Common stock: $5 par, authorized 85,000 shares During 2011, the following transactions

> Witt Corporation received its charter during January 2011. The charter authorized the following capital stock: Preferred stock: 10 percent, par $10, authorized 21,000 shares Common stock: par $8, authorized 50,000 shares During 2011, the following tran

> At December 31, 2011, the records of NCIS Corporation provided the following selected and incomplete data: Common stock (par $10; no changes during the year). Shares authorized, 200,000. Shares issued, ? ; issue price $17 per share; cash coll

> Assume for each of the following independent cases that the annual accounting period ends on December 31, 2011, and that the revenue and expense accounts at that date reflect a loss of $20,000. Case A: Assume that the company is a sole proprietorship own

> Procter & Gamble is a well-known consumer products company that owns a variety of popular brands. A recent news article contained the following information: CINCINNATI, March 9 /PRNewswire-FirstCall/—The Procter & Gamble Company (NYSE: PG) today said tha

> You are a personal financial planner working with a married couple in their early 40s who have decided to invest $100,000 in corporate bonds. You have found two bonds that you think will interest your clients. One is a zero coupon bond issued by PepsiCo

> Uno Company has outstanding 52,000 shares of $10 par value common stock and 25,000 shares of $20 par value preferred stock (8 percent). On December 1, 2011, the board of directors voted an 8 percent cash dividend on the preferred stock and a 30 percent s

> Heather and Scott, two young financial analysts, were reviewing financial statements for Dell, one of the world’s largest manufacturers of personal computers. Scott noted that the company did not report any dividends in the Financing Activity section of

> Chicago Company had the following stock outstanding and retained earnings at December 31, 2011: Common stock (par $8; outstanding, 35,000 shares)........................ $280,000 Preferred stock, 10% (par $15; outstanding, 8,000 shares) ................

> RadioShack Corporation primarily engages in the retail sale of consumer electronics goods and services through 4,467 company-operated stores under the RadioShack brand, located throughout the United States, as well as in Puerto Rico and the U.S. Virgin I

> A company issued 100,000 shares of common stock with a par value of $1 per share. The stock sold for $20 per share. By what amount does stockholders’ equity increase? a. $100,000 b. $1,900,000 c. $2,000,000 d. No change in stockholders’ equity

> Which order best describes the largest number of shares to the smallest number of shares? a. Shares authorized, shares issued, shares outstanding. b. Shares issued, shares outstanding, shares authorized. c. Shares outstanding, shares issued, shares autho

> Which of the following statements about stock dividends is true? a. Stock dividends are reported on the statement of cash flows. b. Stock dividends are reported on the statement of retained earnings. c. Stock dividends increase total equity. d. Stock div

> Which statement regarding treasury stock is false? a. Treasury stock is considered to be issued but not outstanding. b. Treasury stock has no voting, dividend, or liquidation rights. c. Treasury stock reduces total equity on the balance sheet. d. None of

> Katz Corporation has issued 400,000 shares of common stock and holds 20,000 shares in treasury. The charter authorized the issuance of 500,000 shares. The company has declared and paid a dividend of $1 per share. What is the total amount of the dividend?