Transactions that involve merely purchases or sales of cash equivalents generally are not reported in a statement of cash flows. Describe an exception to this generalization. What is the essential characteristic of the transaction that qualifies as an exception?
> On December 31, 2017, Berclair Inc. had 200 million shares of common stock and 3 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 24 million shares of its common stock as treasur
> On December 31, 2017, Berclair Inc. had 200 million shares of common stock and 3 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 24 million shares of its common stock as treasur
> On December 31, 2017, Berclair Inc. had 200 million shares of common stock and 3 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 24 million shares of its common stock as treasur
> When companies offer new equity security issues, they publicize the offerings in the financial press and on Internet sites. Assume the following were among the equity offerings reported in December 2018: New Securities Issues Equity American Materials Tr
> On December 31, 2017, Berclair Inc. had 200 million shares of common stock and 3 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2018, Berclair purchased 24 million shares of its common stock as treasur
> The sale of stock and the sale of bonds are reported as financing activities. Are payments of dividends to shareholders and payments of interest to bondholders also reported as financing activities? Explain.
> At December 31, 2017, Albrecht Corporation had outstanding 373,000 shares of common stock and 8,000 shares of 9.5%, $100 par value cumulative, nonconvertible preferred stock. On May 31, 2018, Albrecht sold for cash 12,000 shares of its common stock. No c
> Hardaway Fixtures’ balance sheet at December 31, 2017, included the following: Shares issued and outstanding: Common stock, $1 par ……………………………………………. $800,000 Nonconvertible preferred stock, $50 par ………………………. 20,000 On July 21, 2018, Hardaway issued a
> The Alford Group had 202,000 shares of common stock outstanding at January 1, 2018. The following activities affected common shares during the year. There are no potential common shares outstanding. 2018 Feb. 28 Purchased 6,000 shares of treasury stock O
> For the year ended December 31, 2018, Norstar Industries reported net income of $655,000. At January 1, 2018, the company had 900,000 common shares outstanding. The following changes in the number of shares occurred during 2018: Apr. 30 Sold 60,000 shar
> Tesla Motor’s disclosure notes for the year ending December 31, 2015, included the following regarding its $0.001 par common stock: EMPLOYEE STOCK PURCHASE PLAN—Employees are eligible to purchase common stock through payroll deductions of up to 15% of th
> Most changes in accounting principles are recorded and reported retrospectively. In a few situations, though, the changes should be reported prospectively. When is prospective application appropriate? Provide examples.
> In order to encourage employee ownership of the company’s $1 par common shares, Washington Distribution permits any of its employees to buy shares directly from the company through payroll deduction. There are no brokerage fees and shares can be purchase
> SSG Cycles manufactures and distributes motorcycle parts and supplies. Employees are offered a variety of share-based compensation plans. Under its nonqualified stock option plan, SSG granted options to key officers on January 1, 2018. The options permit
> Walters Audio Visual Inc. offers an incentive stock option plan to its regional managers. On January 1, 2018, options were granted for 40 million $1 par common shares. The exercise price is the market price on the grant date—$8 per share. Options cannot
> On January 1, 2018, Hugh Morris Comedy Club (HMCC) granted 1 million stock options to key executives exercisable for 1 million shares of the company’s common stock at $20 per share. The stock options are intended as compensation for the next three years.
> Investing activities include the acquisition and disposition of assets. Provide three specific examples. Identify two exceptions.
> Ozark Distributing Company is primarily engaged in the wholesale distribution of consumer products in the Ozark Mountain regions. The following disclosure note appeared in the company’s 2018 annual report: Note 5. Convertible Preferred Stock (in part): T
> Refer to the situation described in BE 19–3. Suppose that unexpected turnover during 2019 caused the forfeiture of 5% of the stock options. What is the effect on earnings in 2019? In 2020? In BE 19–3 Under its executive stock option plan, National Corpo
> Under its executive stock option plan, National Corporation granted 12 million options on January 1, 2018, that permit executives to purchase 12 million of the company’s $1 par common shares within the next six years, but not before December 31, 2020 (th
> Second Link Services granted restricted stock units (RSUs) representing 16 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within four years. After the recipients of the RSUs satisfy the vesting requir
> First Link Services granted 8 million of its $1 par common shares to executives, subject to forfeiture if employment is terminated within three years. The common shares have a market price of $6 per share on the grant date of the restricted stock award.
> Niles Company granted 9 million of its no par common shares to executives, subject to forfeiture if employment is terminated within three years. The common shares have a market price of $5 per share on January 1, 2017, the grant date of the restricted st
> Sugarbaker Designs Inc. changed from the FIFO inventory costing method to the average cost method during 2018. Which items from the 2017 financial statements should be restated on the basis of the average cost method when reported in the 2018 comparative
> Ahnberg Corporation had 800,000 shares of common stock issued and outstanding at January 1. No common shares were issued during the year, but on January 1, Ahnberg issued 100,000 shares of convertible preferred stock. The preferred shares are convertible
> Fully vested incentive stock options exercisable at $50 per share to obtain 24,000 shares of common stock were outstanding during a period when the average market price of the common stock was $60 and the ending market price was $60. By how many shares w
> At December 31, 2017 and 2018, Funk & Noble Corporation had outstanding 820 million shares of common stock and 2 million shares of 8%, $100 par value cumulative preferred stock. No dividends were declared on either the preferred or common stock in 2017 o
> Do cash flows from operating activities report all the elements of the income statement on a cash basis? Explain.
> McDonnell-Myer Corporation reported net income of $741 million. The company had 544 million common shares outstanding at January 1 and sold 36 million shares on Feb. 28. As part of an annual share repurchase plan, 6 million shares were retired on April 3
> 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
> ICOT Industries issued 15 million of its $1 par common shares for $424 million on April 11. Legal, promotional, and accounting services necessary to effect the sale cost $2 million. Required: 1. Prepare the journal entry to record the issuance of the sh
> Refer to the situation described in BE 19–8. Suppose that Farmer initially estimates that it is not probable the goal will be achieved, but then after one year, Farmer estimates that it is probable that divisional revenue will increase by 5% by the end o
> Refer to the situation described in BE 19–8. Suppose that after one year, Farmer estimates that it is not probable that divisional revenue will increase by 5% in three years. What action will be taken to account for the options in 2019? In BE 19–8 On Oc
> Refer to the situation described in BE 19–3. Suppose that the options are exercised on April 3, 2021, when the market price is $19 per share. What journal entry will National record? In BE 19–3 Under its executive stock option plan, National Corporation
> Wiseman Electronics has an agreement with certain of its division managers that 50,000 contingently issuable shares will be issued next year in the event operating income exceeds $2.1 million that year. In what way, if any, is the calculation of EPS affe
> Lynch Corporation changes from the sum-of-the-years’-digits method of depreciation for existing assets to the straight-line method. How should the change be reported? Explain.
> How is the potentially dilutive effect of convertible preferred stock reflected in EPS calculations by the if-converted method? How is this different from the way convertible bonds are considered?
> The potentially dilutive effect of convertible securities is reflected in EPS calculations by the if-converted method. Describe this method as it relates to convertible bonds.
> What are the differences between cash flows from operating activities and the elements of an income statement?
> The treasury stock method is used to incorporate the dilutive effect of stock options, stock warrants, and similar securities. Describe this method as it applies to diluted EPS.
> Why are preferred dividends deducted from net income when calculating EPS? Are there circumstances when this deduction is not made?
> Blake Distributors had 100,000 common shares outstanding at the beginning of the year, January 1. On May 13, Blake distributed a 5% stock dividend. Blake retired 1,200 shares on August 1. What is the weighted average number of shares for calculating EPS?
> When calculating the weighted average number of common shares, how are stock dividends and stock splits treated? Compare this treatment with that of additional shares sold for cash at midyear.
> Williams Industries has outstanding 30 million common shares, 20 million Class A shares, and 20 million Class B shares. Williams has the right but not the obligation to repurchase the Class A shares if a change in ownership of the voting common shares ca
> What is a simple capital structure? How is EPS determined for a company with a simple capital structure?
> Stock option (and other share-based) plans often specify a performance condition or a market condition that must be satisfied before employees are allowed the benefits of the award. Describe the general approach we use to account for performance-based op
> The Tax Code differentiates between qualified option plans, including incentive plans, and nonqualified plans. What are the major differences in tax treatment between incentive plans and nonqualified plans?
> In 2018, Western Transport Company entered into the treasury stock transactions described below. In 2016, Western Transport had issued 140 million shares of its $1 par common stock at $17 per share. Required: Prepare the appropriate journal entry for ea
> Stock option plans provide employees the option to purchase: (a) A specified number of shares of the firm’s stock, (b) At a specified price, (c) During a specified period of time. One of the most controversial aspects of accounting for stock-based compen
> What is restricted stock? How do restricted stock awards differ from restricted stock units (RSUs)? Describe how compensation expense is determined and recorded for a restricted stock award plan.
> LTV Corporation grants SARs to key executives. Upon exercise, the SARs entitle executives to receive either cash or stock equal in value to the excess of the market price at exercise over the share price at the date of grant. How should LTV account for t
> The fair value of stock options can be considered to comprise two main components. What are they?
> In addition to EPS numbers themselves, what additional disclosures should be provided concerning the EPS information?
> When the income statement includes discontinued operations, which amounts require per share presentation?
> Diluted EPS would be precisely the same whether convertible securities were actually converted or not. Why?
> During its first year of operations, Eastern Data Links Corporation entered into the following transactions relating to shareholders’ equity. The articles of incorporation authorized the issue of 8 million common shares, $1 par per share, and 1 million p
> Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended January 30, 2016, are available in Connect. This material also is available under the Investor Relations li
> Air France–KLM (AF), a Franco-Dutch company, prepares its financial statements according to International Financial Reporting Standards. AF’s financial statements and disclosure notes for the year ended December 31, 2015, are available in Connect. This m
> We report most changes in accounting principle retrospectively. Describe this general way of recording and reporting changes in accounting principle.
> Is an investment in Treasury bills always classified as a cash equivalent? Explain.
> Alcoa is the world’s leading producer of primary aluminum, fabricated aluminum, and alumina. The following is a press release from the company: ALCOA ANNOUNCES 33% INCREASE IN BASE DIVIDEND, 2-FOR-I STOCK SPLIT PITTSBURGH—Alcoa today announced that its B
> Titan Networking became a public company through an IPO (initial public offering) two weeks ago. You are looking forward to the challenges of being assistant controller for a publicly owned corporation. One such challenge came in the form of a memo in th
> The shareholders’ equity portion of the balance sheet of Sessel’s Department Stores, Inc., a large regional specialty retailer, is as follows: Disclosures elsewhere in Sessel’s annual report reveale
> Ray Dolby started Dolby Laboratories and since then has been a leader in the entertainment industry and consumer electronics. Closely held since its founding in 1965, Dolby decided to go public. Here’s an AP news report: DOLBY’S IPO EXPECTED TO PLAY SWEE
> AGF Foods Company is a large, primarily domestic, consumer Foods Company involved in the manufacture, distribution, and sale of a variety of food products. Industry averages are derived from Troy’s The Almanac of Business and Industrial
> You are the newest member of the staff of Brinks & Company, a medium-size investment management firm. You are supervised by Les Kramer, an employee of two years. Les has a reputation as being technically sound but has a noticeable gap in his accounting e
> An unsettled question in accounting for stock is this: Should preferred stock be recognized as a liability, or should it be considered equity? Under International Financial Reporting Standards, preferred stock (preference shares) often is reported as deb
> The current conceptual distinction between liabilities and equity defines liabilities independently of assets and equity, with equity defined as a residual amount. The present proliferation of financial instruments that combine features of both debt and
> The following is a news item reported by Reuters: WASHINGTON, Jan 29 (Reuters)—Wright Medical Group, a maker of reconstructive implants for knees and hips, on Tuesday filed to sell 3 million shares of common stock. In a filing with the U.S. Securities an
> Bricker Graphics is a privately held company specializing in package labels. Representatives of the firm have just returned from Switzerland, where a Swiss firm is manufacturing a custom-made high speed, color labeling machine. Confidence is high that th
> The statement of cash flows provides a list of all the cash inflows and cash outflows during the reporting period. To make the list more informative, the cash flows are classified according to the nature of the activities that create the cash flows. What
> For accounting purposes, we classify accounting changes into three categories. What are they? Provide a short description of each.
> The shareholders’ equity section of the balance sheet of TNL Systems Inc. included the following accounts at December 31, 2017: Shareholders’ Equity _________________________ ($ in millions) Common stock, 240 million shares at $1 par ………………………………………… $ 2
> Part A During its first year of operations, the McCollum Corporation entered into the following transactions relating to shareholders’ equity. The corporation was authorized to issue 100 million common shares, $1 par per share. Require
> A new CEO was hired to revive the floundering Champion Chemical Corporation. The company had endured operating losses for several years, but confidence was emerging that better times were ahead. The board of directors and shareholders approved a quasi re
> Part A In late 2017, the Nicklaus Corporation was formed. The corporate charter authorizes the issuance of 5,000,000 shares of common stock carrying a $1 par value, and 1,000,000 shares of $5 par value, noncumulative, nonparticipating preferred stock. On
> Ellis Transport Company acquired 1.2 million shares of stock in L&K Corporation at $44 per share. They are classified by Ellis as “available for sale.” Ellis sold 200,000 shares at $46, received a 10% stock dividend, and then later in the year sold anoth
> Indicate by letter whether each of the transactions listed below increases (I), decreases (D), or has no effect (N) on retained earnings. Assume the shareholders’ equity of the transacting company includes only common stock, paid-in capital—excess of par
> The shareholders’ equity of Kramer Industries includes the data shown below. During 2019, cash dividends of $150 million were declared. Dividends were not declared in 2017 or 2018. ???????______________________________($ in millions) Common stock …………………
> During its first year of operations, Cupola Fan Corporation issued 30,000 of $1 par Class B shares for $385,000 on June 30, 2018. Share issue costs were $1,500. One year from the issue date (July 1, 2019), the corporation retired 10% of the shares for $3
> The following is a portion of the Statement of Shareholders’ Equity from Cisco Systems’ January 23, 2016, quarterly report. Required: 1. What is the purpose of the statement of shareholders’ equity?
> Hanmi Financial Corporation is the parent company of Hanmi Bank. The company’s stock split was announced in the following wire: LOS ANGELES Jan. 20 BUSINESS WIRE —Hanmi Financial Corporation (Nasdaq), announced that the Board of Directors has approved a
> Indicate by letter whether each of the items listed below most likely is reported in the income statement as Net Income (NI) or in the statement of comprehensive income as Other Comprehensive Income (OCI). __________________Items____________________ ____
> Suppose the error described in the previous question is not discovered until six years later. What action will the discovery of this error require? In the previous question What action is required when it is discovered that a five-year insurance premium
> The FASB Accounting Standards Codification represents the single source of authoritative U.S. generally accepted accounting principles. Required: 1. Obtain the relevant authoritative literature on stock compensation using the FASB Accounting Standards C
> Comparative statements of shareholders’ equity for Anaconda International Corporation were reported as follows for the fiscal years ending December 31, 2018, 2019, and 2020. Required: 1. Infer from the statements the events and transa
> Listed below are the transactions that affected the shareholders’ equity of Branch-Rickie Corporation during the period 2018–2020. At December 31, 2017, the corporation’s accounts included: ____________________________________($ in thousands) Common stoc
> Target Corporation prepares its financial statements according to U.S. GAAP. Target’s financial statements and disclosure notes for the year ended January 30, 2016, are available in Connect. This material is also available under the Investor Relations li
> Air France–KLM (AF), a Franco-Dutch company, prepares its financial statements according to International Financial Reporting Standards. AF’s financial statements and disclosure notes for the year ended December 31, 2015, are provided in Connect. This ma
> Locate the 2015 financial statements and related disclosure notes of FedEx Corporation. You can locate the report online at www.fedex.com. Required: 1. From the information provided in the statement of cash flows, explain what allows FedEx Corporation t
> You are a loan officer for First Benevolent Bank. You have an uneasy feeling as you examine a loan application from Daring Corporation. The application included the following financial statements. DARING CORPORATION Income Statement For the Year Ended D
> “Why can’t we pay our shareholders a dividend?” shouted your new boss. “This income statement you prepared for me says we earned $5 million in our first half-year!” You were hired last month as the chief accountant for Enigma Corporation, which was organ
> Companies are required to transfer “other comprehensive income” each period to shareholders’ equity. The FASB Accounting Standards Codification represents the single source of authoritative U.S. generally accepted accounting principles. Required: 1. Obt
> Given sales revenue of $200,000, how can it be determined whether or not $200,000 cash was received from customers?
> What is the purpose of the “changes” columns of a spreadsheet to prepare a statement of cash flows?
> Perhaps the most noteworthy item reported on an income statement is net income—the amount by which revenues exceed expenses. The most noteworthy item reported on a statement of cash flows is not the amount of net cash flows. Explain.
> The shareholders’ equity of Core Technologies Company on June 30, 2017, included the following: Common stock, $1 par; authorized, 8 million shares; issued and outstanding, 3 million shares ???…………………………………………………………………………………………………………….. $ 3,000,000 Paid-i
> Magnetic-Optical Corporation offers a variety of share-based compensation plans to employees. Under its restricted stock unit plan, the company on January 1, 2018, granted restricted stock units (RSUs) representing 4 million of its $1 par common shares t
> Borner Communications’ articles of incorporation authorized the issuance of 130 million common shares. The transactions described below effected changes in Borner’s outstanding shares. Prior to the transactions, Borner’s shareholders’ equity included the
> The following is from the 2018 annual report of Kaufman Chemicals, Inc.: Kaufman reports accumulated other comprehensive income in its balance sheet as a component of shareholders’ equity as follows: Required: 1. What is comprehensi
