Question: When companies offer new equity security issues,

> National Food Services, Inc., borrowed $4 million from its local bank on January 1, 2018, and issued a 4-year installment note to be paid in four equal payments at the end of each year. The payments include interest at the rate of 10%. Installment paymen

> Most Solutions, Inc., issued 10% bonds, dated January 1, with a face amount of $640 million on January 1, 2018. The bonds mature in 2028 (10 years). For bonds of similar risk and maturity the market yield is 12%. Interest expense is recorded at the effec

> For each of the five independent situations below, prepare a single journal entry that summarizes the recording and payment of income taxes in order to determine the amount of cash paid for income taxes and explain the change (if any) in each of the acco

> Describe the process of correcting an error when it’s discovered in a subsequent reporting period.

> Determine the amount of cash paid for income taxes in each of the nine independent situations below. All dollars are in millions. Income Tax Deferred Tax Cash Paid for Taxes Income Tax Payable Increase (Decrease) Liability Increase (Decrease) Situat

> At December 31, 2017, the balance sheet of Meca International included the following shareholders’ equity accounts: Shareholders’ Equity ___________________ ($ in millions) Common stock, 60 million shares at $1 par …………………………… $ 60 Paid-in capital—excess

> For each of the four independent situations below, prepare a single journal entry that summarizes the recording and payment of interest in order to determine the amount of cash paid for bond interest and explain the change (if any) in each of the account

> Determine the amount of cash paid to bondholders for bond interest for each of the six independent situations below. All dollars are in millions. Bond Interest Unamortized Bond Interest Discount Payable Increase (Decrease) Cash Paid Situation Expens

> Why does the FASB recommend the direct method over the indirect method?

> Comparative balance sheets for Softech Canvas Goods for 2018 and 2017 are shown below. Softech pays no dividends and instead reinvests all earnings for future growth. Required: 1. Determine the return on shareholders’ equity for 2018.

> For each of the five independent situations below, prepare a journal entry that summarizes the purchases, sales, and payments related to inventories in order to determine the amount of cash paid to suppliers and explain the change in each account shown.

> Determine the amount of cash paid to suppliers of merchandise for each of the nine independent situations below. All dollars are in millions. Cost of Inventory Cash Paid Accounts Payable Increase (Decrease) Situation Goods Sold Increase (Decrease) t

> For each of the three independent situations below, prepare journal entries that summarize the selling and collection activities for the reporting period in order to determine the amount of cash received from customers and to explain the change in each a

> Determine the amount of cash received from customers for each of the three independent situations below. All dollars are in millions. Sales Accounts Receivable Cash Received from Situation Revenue Increase (Decrease) Customers 1 100 -0- 2 100 5 3 10

> Shown below in T-account format are the beginning and ending balances ($ in millions) of both inventory and accounts payable. Required: 1. Use a T-account analysis to determine the amount of cash paid to suppliers of merchandise during the reporting pe

> Listed below are several transactions that typically produce either an increase or a decrease in cash. Indicate by letter whether the cash effect of each transaction is reported on a statement of cash flows as an operating (O), investing (I), or financin

> On January 1, 2018, the Merit Group issued to its bank a $41 million, five-year installment note to be paid in five equal payments at the end of each year. Installment payments of $10 million annually include interest at the rate of 7%. What would be the

> The issuance of FASB guidance regarding consolidation of all majority-owned subsidiaries required Ford Motors to include a previously unconsolidated finance subsidiary as part of the reporting entity. How did Ford report the change?

> Refer to the data provided in E 21–27 for Red, Inc. In E 21–27 Comparative balance sheets for 2018 and 2017, a statement of income for 2018, and additional information from the accounting records of Red, Inc., are pro

> Refer to the data provided in E 21–27 for Red, Inc. In E 21–27 Comparative balance sheets for 2018 and 2017, a statement of income for 2018, and additional information from the accounting records of Red, Inc., are pro

> When using the indirect method of determining net cash flows from operating activities, how are revenues and expenses reported on the statement of cash flows if their cash effects are identical to the amounts reported in the income statement?

> Access the FASB Accounting Standards Codification at the FASB website (www.fasb.org). Determine the specific citation for accounting for each of the following items: 1. Disclosure of interest and income taxes paid if the indirect method is used 2. Primar

> The statement of cash flows (as well as the balance sheet) includes within cash the notion of cash equivalents. The FASB Accounting Standards Codification represents the single source of authoritative U.S. generally accepted accounting principles. Requi

> The balance sheet of Consolidated Paper, Inc., included the following shareholders’ equity accounts at December 31, 2017: ?????_____________________________________($ in millions) Paid-in capital: Preferred stock, 8.8%, 90,000 shares at $1 par ……………………..

> Mayer Corporation has a defined benefit pension plan. Mayer’s policy is to fund the plan annually, cash payments being made at the end of each year. Data relating to the pension plan for 2018 are as follows: Required: Recreate the jou

> Comparative balance sheets for 2018 and 2017, a statement of income for 2018, and additional information from the accounting records of Red, Inc., are provided below. Additional information from the accounting records: a. During 2018, $230 million of e

> Refer to the data provided in E 21–25 for Clear Transmissions Company. In E 21–25 Portions of the financial statements for Clear Transmissions Company are provided on the following page. Required: Prepare the cash f

> When an asset is sold at a gain, why is the gain not reported as a cash inflow from operating activities?

> Portions of the financial statements for Clear Transmissions Company are provided on the following page. Required: Prepare the cash flows from operating activities section of the statement of cash flows for Clear Transmissions Company using the direct

> Refer to the data provided in E 21–23 for Myriad Products Company. In E 21–23 Portions of the financial statements for Myriad Products are provided below. Required: Prepare the cash flows from operating activities s

> On January 1, 2018, Adams-Meneke Corporation granted 25 million incentive stock options to division managers, each permitting holders to purchase one share of the company’s $1 par common shares within the next six years, but not before December 31, 2020

> Portions of the financial statements for Myriad Products are provided below. Required: Prepare the cash flows from operating activities section of the statement of cash flows for Myriad Products Company using the direct method. MYRIAD PRODUCTS COMP

> When using the indirect method of determining net cash flows from operating activities, how is warranty expense reported? Why? What other expenses are reported in a like manner?

> The accounting records of Baddour Company provided the data below. Prepare a reconciliation of net income to net cash flows from operating activities. Net loss ………………………………………….……… $5,000 Depreciation expense …………………….…………. 6,000 Increase in salaries pay

> The income statement and a schedule reconciling cash flows from operating activities to net income are provided below ($ in thousands) for Peach Computers. Required: 1. Calculate each of the following amounts for Peach Computers: a. Cash received from

> The income statement and the cash flows from the operating activities section of the statement of cash flows are provided on the next page for Syntric Company. The merchandise inventory account balance neither increased nor decreased during the reporting

> The following schedule relates the income statement with cash flows from operating activities, derived by both the direct and indirect methods, in the format illustrated by Illustration 21–11 in the chapter. The amounts for income state

> Access the FASB Accounting Standards Codification at the FASB website (www.fasb.org). Determine the specific citation for accounting for each of the following items: 1. Requirements to disclose within the financial statements the pertinent rights and pri

> In 2018, internal auditors discovered that PKE Displays, Inc., had debited an expense account for the $350,000 cost of a machine purchased on January 1, 2015. The machine’s useful life was expected to be five years with no residual value. Straight-line d

> During 2018, its first year of operations, McCollum Tool Works entered into the following transactions relating to shareholders’ equity. The corporation was authorized to issue 100 million common shares, $1 par per share. Jan. 2 Issued 35 million common

> In 2018, Borland Semiconductors entered into the transactions described below. In 2015, Borland had issued 170 million shares of its $1 par common stock at $34 per share. Required: Assuming that Borland retires shares it reacquires, record the appropria

> PHN Foods granted 18 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. Required: 1. What jou

> As part of its executive compensation plan, Vertovec Inc. granted 54,000 of its no par common shares to executives, subject to forfeiture if employment is terminated within three years. Vertovec’s common shares have a market price of $5 per share on Janu

> Information from the financial statements of Ames Fabricators, Inc., included the following: Ames’s net income for the year ended December 31, 2018, is $500,000. The income tax rate is 40%. Ames paid dividends of $5 per share on its p

> Stanley Department Stores reported net income of $720,000 for the year ended December 31, 2018. Additional Information: Common shares outstanding at Jan. 1, 2018 ……………………………………………………………… 80,000 Incentive stock options (vested in 2017) outstanding through

> Southeast Steel, Inc., changed from the FIFO inventory costing method to the LIFO method during 2017. How would this change likely be reported in the 2018 comparative financial statements?

> 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

> 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

> 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 ex

> 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?