On September 1, 2012, Jacob Company sold at 104 (plus accrued interest) 3,000 of its 8%, 10-year, $1,000 face value, nonconvertible bonds with detachable stock warrants. Each bond carried two detachable warrants. Each warrant was for one share of common stock at a specified option price of $15 per share. Shortly after issuance, the warrants were quoted on the market for $3 each. No fair value can be determined for the Jacob Company bonds. Interest is payable on December 1 and June 1. Bond issue costs of $30,000 were incurred. Instructions Prepare in general journal format the entry to record the issuance of the bonds.
> Kellogg Company in its 2004 Annual Report in Note 1—Accounting Policies made the comment on page 962 about its accounting for employee stock options and other stock-based compensation. This was the annual report issued the year before t
> Go to the book’s companion website and use information found there to answer the following questions related to The Coca-Cola Company and PepsiCo, Inc. (a) What employee stock-option compensation plans are offered by Coca-Cola and PepsiCo? (b) How many o
> Over what period of time should compensation cost be allocated?
> The financial statements of P&G are presented in Appendix 5B or can be accessed at the book’s companion website, www.wiley.com/college/kieso. Instructions Refer to P&G’s financial statements and accompanying notes to answer the following questions. (a)
> Brad Dolan, a stockholder of Rhode Corporation, has asked you, the firm’s accountant, to explain why his stock warrants were not included in diluted EPS. In order to explain this situation, you must briefly explain what dilutive securities are, why they
> Chorkina Corporation, a new audit client of yours, has not reported earnings per share data in its annual reports to stockholders in the past. The treasurer, Beth Botsford, requested that you furnish information about the reporting of earnings per share
> “Earnings per share” (EPS) is the most featured, single financial statistic about modern corporations. Daily published quotations of stock prices have recently been expanded to include for many securities a “times earnings” figure that is based on EPS. S
> The following two items appeared on the Internet concerning the GAAP requirement to expense stock options. WASHINGTON, D.C.—February 17, 2005 Congressman David Dreier (R–CA), Chairman of the House Rules Committee, and Congresswoman Anna Eshoo (D–CA) rein
> For various reasons a corporation may issue warrants to purchase shares of its common stock at specified prices that, depending on the circumstances, may be less than, equal to, or greater than the current market price. For example, warrants may be issue
> The executive officers of Rouse Corporation have a performance-based compensation plan. The performance criteria of this plan is linked to growth in earnings per share. When annual EPS growth is 12%, the Rouse executives earn 100% of the shares; if growt
> Sprinkle Inc. has outstanding 10,000 shares of $10 par value common stock. On July 1, 2012, Sprinkle reacquired 100 shares at $87 per share. On September 1, Sprinkle reissued 60 shares at $90 per share. On November 1, Sprinkle reissued 40 shares at $83 p
> Incurring long-term debt with an arrangement whereby lenders receive an option to buy common stock during all or a portion of the time the debt is outstanding is a frequent corporate financing practice. In some situations, the result is achieved through
> Agassi Corporation is preparing the comparative financial statements to be included in the annual report to stockholders. Agassi employs a fiscal year ending May 31. Income from operations before income taxes for Agassi was $1,400,000 and $660,000, respe
> The information below pertains to Barkley Company for 2013. Net income for the year ……………………………………………………………………………………. $1,200,000 8% convertible bonds issued at par ($1,000 per bond); each bond is convertible into 30 shares of common stock ………………………………………
> 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
> Charles Austin of the controller’s office of Thompson Corporation was given the assignment of determining the basic and diluted earnings per share values for the year ending December 31, 2013. Austin has compiled the information listed below. 1. The comp
> Melton Corporation is preparing the comparative financial statements for the annual report to its shareholders for fiscal years ended May 31, 2012, and May 31, 2013. The income from operations for each year was $1,800,000 and $2,500,000, respectively. In
> Amy Dyken, controller at Fitzgerald Pharmaceutical Industries, a public company, is currently preparing the calculation for basic and diluted earnings per share and the related disclosure for Fitzgerald’s financial statements. Below is selected financial
> Assume that Amazon has a stock-option plan for top management. Each stock option represents the right to purchase a share of Amazon $1 par value common stock in the future at a price equal to the fair value of the stock at the date of the grant. Amazon h
> Berg Company adopted a stock-option plan on November 30, 2011, that provided that 70,000 shares of $5 par value stock be designated as available for the granting of options to officers of the corporation at a price of $9 a share. The market price was $12
> Volker Inc. issued $2,500,000 of convertible 10-year bonds on July 1, 2012. The bonds provide for 12% interest payable semiannually on January 1 and July 1. The discount in connection with the issue was $54,000, which is being amortized monthly on a stra
> Moonwalker Corporation issued 2,000 shares of its $10 par value common stock for $60,000. Moonwalker also incurred $1,500 of costs associated with issuing the stock. Prepare Moonwalker’s journal entry to record the issuance of the company’s stock.
> The stockholders’ equity section of Martino Inc. at the beginning of the current year appears below. Common stock, $10 par value, authorized 1,000,000 shares, 300,000 shares issued and outstanding ……………………………………………………………………………………………………. $3,000,000 Paid-i
> Derrick Company establishes a stock-appreciation rights program that entitles its new president, Dan Scott, to receive cash for the difference between the market price of the stock and a pre-established price of $30 (also market price) on January 1, 2011
> On December 31, 2009, Flessel Company issues 120,000 stock-appreciation rights to its officers entitling them to receive cash for the difference between the market price of its stock and a pre-established price of $10. The fair value of the SARs is estim
> Werth Corporation earned $260,000 during a period when it had an average of 100,000 shares of common stock outstanding. The common stock sold at an average market price of $15 per share during the period. Also outstanding were 30,000 warrants that could
> 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
> Brooks Inc. recently purchased Donovan Corp., a large midwestern home painting corporation. One of the terms of the merger was that if Donovan’s income for 2013 was $110,000 or more, 10,000 additional shares would be issued to Donovan’s stockholders in 2
> Zambrano Company’s net income for 2012 is $40,000. The only potentially dilutive securities outstanding were 1,000 options issued during 2011, each exercisable for one share at $8. None has been exercised, and 10,000 shares of common were outstanding dur
> On January 1, 2012, Lindsey Company issued 10-year, $3,000,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 15 shares of Lindsey common stock. Lindsey’s net income in 2013 was $240,000, and its tax rate was 40%. The company had 100,
> The Ottey Corporation issued 10-year, $4,000,000 par, 7% callable convertible subordinated debentures on January 2, 2012. The bonds have a par value of $1,000, with interest payable annually. The current conversion ratio is 14:1, and in 2 years it will i
> On June 1, 2011, Bluhm Company and Amanar Company merged to form Davenport Inc. A total of 800,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis. On April 1, 2013, the company issued an additional 600,000
> On February 1, 2012, Buffalo Corporation issued 3,000 shares of its $5 par value common stock for land worth $31,000. Prepare the February 1, 2012, journal entry.
> In 2012, Buraka Enterprises issued, at par, 75 $1,000, 8% bonds, each convertible into 100 shares of common stock. Buraka had revenues of $17,500 and expenses other than interest and taxes of $8,400 for 2013. (Assume that the tax rate is 40%.) Throughout
> At January 1, 2012, Cameron Company’s outstanding shares included the following. 280,000 shares of $50 par value, 7% cumulative preferred stock 800,000 shares of $1 par value common stock Net income for 2012 was $2,830,000. No cash dividends were declare
> On January 1, 2012, Bailey Industries had stock outstanding as follows. 6% Cumulative preferred stock, $100 par value, issued and outstanding 10,000 shares …………….……………………….. $1,000,000 Common stock, $10 par value, issued and outstanding 200,000 shares ……
> A portion of the statement of income and retained earnings of Pierson Inc. for the current year follows. Note 1. During the year, Pierson Inc. suffered a major casualty loss of $1,340,000 after applicable income tax reduction of $1,200,000. At the end
> Kendall Inc. presented the following data. Net income ……………………………………..…………………. $2,200,000 Preferred stock: 50,000 shares outstanding, $100 par, 8% cumulative, not convertible ………………. 5,000,000 Common stock: Shares outstanding 1/1 ……………………. 600,000 Issued
> Briefly explain the accounting requirements for stock compensation plans under GAAP.
> Ott Company had 210,000 shares of common stock outstanding on December 31, 2012. During the year 2013, the company issued 8,000 shares on May 1 and retired 14,000 shares on October 31. For the year 2013, Ott Company reported net income of $229,690 after
> On January 1, 2012, Chang Corp. had 480,000 shares of common stock outstanding. During 2012, it had the following transactions that affected the Common Stock account. February 1 ……………………………. Issued 120,000 shares March 1 ……………………….. Issued a 20% stock di
> Gogean Inc. uses a calendar year for financial reporting. The company is authorized to issue 9,000,000 shares of $10 par common stock. At no time has Gogean issued any potentially dilutive securities. Listed below is a summary of Gogean’s common stock ac
> Tweedie Company issues 10,000 shares of restricted stock to its CFO, Mary Tokar, on January 1, 2012. The stock has a fair value of $500,000 on this date. The service period related to this restricted stock is 5 years. Vesting occurs if Tokar stays with t
> Ravonette Corporation issued 300 shares of $10 par value common stock and 100 shares of $50 par value preferred stock for a lump sum of $13,500. The common stock has a market price of $20 per share, and the preferred stock has a market price of $90 per s
> Derrick Company issues 4,000 shares of restricted stock to its CFO, Dane Yaping, on January 1, 2012. The stock has a fair value of $120,000 on this date. The service period related to this restricted stock is 4 years. Vesting occurs if Yaping stays with
> On January 1, 2011, Scooby Corporation granted 10,000 options to key executives. Each option allows the executive to purchase one share of Scooby’s $5 par value common stock at a price of $20 per share. The options were exercisable within a 2-year period
> On January 1, 2012, Magilla Inc. granted stock options to officers and key employees for the purchase of 20,000 shares of the company’s $10 par common stock at $25 per share. The options were exercisable within a 5-year period beginning January 1, 2014,
> On November 1, 2011, Olympic Company adopted a stock-option plan that granted options to key executives to purchase 40,000 shares of the company’s $10 par value common stock. The options were granted on January 2, 2012, and were exercisable 2 years after
> On May 1, 2012, Barkley Company issued 3,000 $1,000 bonds at 102. Each bond was issued with one detachable stock warrant. Shortly after issuance, the bonds were selling at 98, but the fair value of the warrants cannot be determined. Instructions (a) Pre
> What are stock rights? How does the issuing company account for them?
> Prior Inc. has decided to raise additional capital by issuing $175,000 face value of bonds with a coupon rate of 10%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued
> On January 1, 2011, Trillini Corporation issued $3,000,000 of 10-year, 8% convertible debentures at 102. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be converted into eight shares of Trillini Corporation $100
> The December 31, 2012, balance sheet of Osygus Corp. is as follows. On March 5, 2013, Osygus Corp. called all of the bonds as of April 30, for the principal plus interest through April 30. By April 30, all bondholders had exercised their conversion to
> Wilco Corporation has the following account balances at December 31, 2012. Common stock, $5 par value …………………………………………….. $ 510,000 Treasury stock …………………………………………………………………….. 90,000 Retained earnings ………………………………………………………….. 2,340,000 Paid-in capital in
> If a company’s outstanding shares are increased through a stock dividend or a stock split, how would that alter the presentation of its EPS data?
> For each period that an income statement is presented, what must a company disclose about its EPS?
> For how many periods must a company present EPS data?
> Access the glossary (“Master Glossary”) to answer the following. (a) What is the definition of “basic earnings per share”? (b) What is “dilution”? (c) What is a “warrant”? (d) What is a “grant date”?
> Explain the difference between the voting-interest model and the risk-and-reward model used for consolidation.
> Where are gains and losses related to cash flow hedges involving anticipated transactions reported?
> In what situation will the unrealized holding gain or loss on an available-for-sale security be reported in income?
> What is the purpose of a fair value hedge?
> On January 1, 2012, when its $30 par value common stock was selling for $80 per share, Bartz Corp. issued $10,000,000 of 8% convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five
> What are the main distinctions between a traditional financial instrument and a derivative financial instrument?
> Swarten Corporation issued 600 shares of no-par common stock for $8,200. Prepare Swarten’s journal entry if (a) The stock has no stated value, and (b) The stock has a stated value of $2 per share.
> 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
> What is meant by the term underlying as it relates to derivative financial instruments?
> Franklin Corp. has an investment that it has held for several years. When it purchased the investment, Franklin classified and accounted for it as available-for-sale. Can Franklin use the fair value option for this investment? Explain.
> Hart Golf Co. uses titanium in the production of its specialty drivers. Hart anticipates that it will need to purchase 200 ounces of titanium in October 2012, for clubs that will be shipped in the holiday shopping season. However, if the price of titaniu
> What is the fair value option?
> When must a company recognize an asset retirement obligation?
> On August 15, 2012, Outkast Co. invested idle cash by purchasing a call option on Counting Crows Inc. common shares for $360. The notional value of the call option is 400 shares, and the option price is $40. (Market price of an Outkast share is $40.) The
> What is the GAAP definition of fair value?
> Sarazan Company issues a 4-year, 7.5% fixed-rate interest only, non-prepayable$1,000,000 note payable on December 31, 2012. It decides to change the interest rate from a fixed rate to variable rate and enters into a swap agreement with M&S Corp. The swap
> When is a debt security considered impaired? Explain how to account for the impairment of an available-for-sale debt security
> Gabel Company has bonds payable outstanding in the amount of $400,000, and the Premium on Bonds Payable account has a balance of $6,000. Each $1,000 bond is convertible into 20 shares of preferred stock of par value of $50 per share. All bonds are conver
> Buttercup Corporation issued 300 shares of $10 par value common stock for $4,500. Prepare Buttercup’s journal entry.
> On January 2, 2012, Parton Company issues a 5-year, $10,000,000 note at LIBOR, with interest paid annually. The variable rate is reset at the end of each year. The LIBOR rate for the first year is 5.8%. Parton Company decides it prefers fixed-rate financ
> Briefly discuss how a transfer of securities from the available-for-sale category to the trading category affects stockholders’ equity and income.
> On January 2, 2012, MacCloud Co. issued a 4-year, $100,000 note at 6% fixed interest, interest payable semiannually. MacCloud now wants to change the note to a variable-rate note. As a result, on January 2, 2012, MacCloud Co. enters into an interest rate
> Explain why reclassification adjustments are necessary.
> On January 2, 2012, Jones Company purchases a call option for $300 on Merchant common stock. The call option gives Jones the option to buy 1,000 shares of Merchant at a strike price of $50 per share. The market price of a Merchant share is $50 on January
> Presented below is selected information related to the financial instruments of Dawson Company at December 31, 2012. This is Dawson Company’s first year of operations. Instructions (a) Dawson elects to use the fair value option whenev
> Assume the same information as in E17-19 for Lilly Company. In addition, assume that the investment in the Woods Inc. stock was sold during 2013 for $195,000. At December 31, 2013, the following information relates to its two remaining investments of com
> Hiram Co. uses the equity method to account for investments in common stock. What accounting should be made for dividends received from these investments subsequent to the date of investment?
> Presented below is information related to Leland Inc. Instructions (a) Compute the following ratios or relationships of Leland Inc. Assume that the ending account balances are representative unless the information provided indicates differently. (1) C
> Presented below is information related to the purchases of common stock by Lilly Company during 2012. Instructions (a) What entry would Lilly make at December 31, 2012, to record the investment in Arroyo Company stock if it chooses to report this secur
> Why is the distinction between paid-in capital and retained earnings important?
> Schuss Inc. issued $3,000,000 of 10%, 10-year convertible bonds on June 1, 2012, at 98 plus accrued interest. The bonds were dated April 1, 2012, with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basi
> When the equity method is applied, what disclosures should be made in the investor’s financial statements?
> Vogue Company’s condensed financial statements provide the following information. Income Statement for the year ended 2012 Sales ……………
> On November 3, 2012, Sprinkle Co. invested $200,000 in 4,000 shares of the common stock of Pratt Co. Sprinkle classified this investment as available-for-sale. Sprinkle Co. is considering making a more significant investment in Pratt Co. at some point in
> Cairo Corporation has municipal bonds classified as available for-sale at December 31, 2012. These bonds have a par value of $800,000, an amortized cost of $800,000, and a fair value of $740,000. The unrealized loss of $60,000 previously recognized as ot
> The financial statements of Marks and Spencer plc 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
> Costner Company has been operating for several years, and on December 31, 2012, presented the following balance sheet. The net income for 2012 was $25,000. Assume that total assets are the same in 2011 and 2012. Instructions Compute each of the follow
> LEW Jewelry Co. uses gold in the manufacture of its products. LEW anticipates that it will need to purchase 500 ounces of gold in October 2012, for jewelry that will be shipped for the holiday shopping season. However, if the price of gold increases, LEW
> On January 1, 2012, Meredith Corporation purchased 25% of the common shares of Pirates Company for $200,000. During the year, Pirates earned net income of $80,000 and paid dividends of $20,000. Instructions Prepare the entries for Meredith to record the
> What constitutes “significant influence” when an investor’s financial interest is below the 50% level?
> Distinguish between common and preferred stock.
> Presented below is a list of possible transactions. 1. Purchased inventory for $80,000 on account (assume perpetual system is used). 2. Issued an $80,000 note payable in payment on account (see item 1 above). 3. Recorded accrued interest on the note from
