Question: Why do companies report a gain or

> What is meant by dividend arrearage on preferred stock? If dividends are two years in arrears on $500.000 of 6% preferred stock and dividends arc declared at the end of this year, what amount of tow dividends must preferred shareholders receive before an

> On January 1, 2019, Shields, Inc., issued $800,000 of 9%, 20-year bonds for $879,172, yielding a market (yield) rate of 8%. Semiannual interest is payable on June 30 and December 31 of each year. a. Show computations to confirm the bond issue price. b. P

> What features make preferred stock similar to debt? Similar to common stock?

> On January I, 2019, McKeown, Inc., issued $250,000 of 8%, 9-year bonds for $220,776, yielding a market (yield) rate of I 0%. Semiannual interest is payable on June 30 and December 31 of each year. a. Show computations to confirm the bond issue price. b.

> What are the basic differences between preferred stock and common stock? What are the typical features of preferred stock?

> Lundholm, Inc., which reports financial statements each December 31, is authorized to issue $500,000 of9%, 15-year bonds dated May I, 2018, with interest payments on October 31 and April 30. Assume the bonds are issued at par on May I, 2018. a. Prepare j

> What is a stock dividend? How does a common stock dividend distributed to common shareholders affect their respective ownership interests?

> A corporation has total stockholders' equity of $4.628.000 and one class of $2 par value common stock. The corporation has 500,000 shares authorized; 300.000 shares issued; 260.000 shares outstanding; and 40.000 shares as treasury stock. What is its book

> On August 1, 2019, Paradise Airlines agreed to lease a passenger jet from Boeing Corporation. The 20-year lease requires an annual payment of $450,000. If Paradise were to purchase the jet, it could borrow the necessary funds at a 9% interest rate. a. Wh

> D'Souza, Inc., issues $900,000 of 11 % bonds that pay interest semiannually and mature in seven years. Assume that the market interest (yield) rate is 12% per year compounded semiannually. Compute the bond issue price.

> If a corporation purchases 600 shares of its own common stock at $10 per share and resells them at $ 14 per share where would the $2.400 increase in capital be reported in the financial statements? Why is no gain reported?

> On January I, 2019, Hutton Corp. issued $300,000 of 15-year, 11 % bonds payable for $377,814, yielding an effective interest rate of 8%. Interest is payable semiannually on June 30 and December 31. a. Show computations to confirm the issue price of $377,

> Define par value stock. What is the significance of a stock's par value from an accounting and analysis perspective?

> Demski Company pays its employees on the 1st and 15th of each month. It is March 31 and Demski is preparing financial statements for this quarter. Its employees have earned $25,000 since the 15th of this month and have not yet been paid. How will Demski'

> Over what time period should the cost of providing retirement benefits to employees be expensed?

> The following independent situations represent various types of liabilities. Analyze each situation and indicate which of the following is the proper accounting treatment for each company: (1) record in accounts, (2) disclose in a financial statement f

> How is the initial valuation determined for lease liability and the right-of-use asset for both an operating lease and a finance lease?

> Waymire Company sells a motor that carries a 60-day unconditional warranty against product failure. Waymire estimates that between the sale and lapse of the product warranty, 2% of the 69,000 units sold this period will require repair at an average cost

> What effect does the use of expected returns on pension investments and the deferral of unexpected gains and losses on those investments have on income?

> Two important concepts that guide income statement reporting are the revenue recognition principle and the expense recognition principle. Define and explain each of these two guiding principles.

> Zeibart Company purchases equipment for $225,000 on July I, 20 I 6, with an estimated useful life of 10 years and expected salvage value of $25,000. Straight-line depreciation is used. On July 1, 2020, economic factors cause the fair value of the equipme

> What are the components of pension expense that is reported in the income statement?

> R&D intensity is measured by the ratio of research and development expense to sales revenue. The following table compares the R&D intensity for various companies. a. Comment on the differences among these companies. To what extent are the differe

> Under what circumstances will a company report a net pension asset? A net pension liability?

> The following footnote is from Note 8 to the 2018 I 0-K of Tesla, Inc.: Note &-Property, Plant and Equipment Our property, plant and equipment, net, consisted of the following (in thousands): The summary of significant accounting policies included th

> What are the economic and accounting differences between a defined contribution plan and a defined benefit plan?

> In 2019, Eldenburg Mining Company purchased land for $7,200,000 that had a natural resource reserve estimated to be 500,000 tons. Development and road construction costs on the land were $420,000 and a building was constructed at a cost of $50.000. When

> ls the expense of a lease over its entire life the same whether it is a finance or an operating lease? Explain.

> On the first day of 2019, Holthausen Company acquired the assets of Leftwich Company including several intangible assets. These include a patent on Leftwich's primary product. a device called a plentiscope Leftwich carried the patent on its books for $1.

> For comparative purposes, when the old lease standard was in effect, were footnote disclosures sufficient to overcome non-recognition on the balance sheet of assets and related liabilities for operating leases? Explain.

> On November 1, 2018, Ybarra Construction Company issued $200,000 of 5-year bonds that pay interest at an annual rate of 5%. The interest payments are due every six months (that is, the interest is compounded semi-annually). At the end of the five-year pe

> 3M Company reports the following financial statement amounts in its 10-K report: a. Compute the receivables, inventory, and PPE turnover ratios for both 2018 and 2017. (Receivables turnover and inventory turnover are discussed in Chapters 6 and 7, respec

> Explain what an unrecognized tax benefit is and where it is recorded on the balance sheet.

> The property and equipment footnote from the Deere & Company balance sheet follows ($ millions): PROPERTY AND DEPRECIATION A summary of property and equipment at October 28, 2018, in millions of dollars follows: During 2018, the company reported $7S4

> Under what circumstances would a tax payment be made that also requires the recording of a deferred tax asset or liability?

> In January 2019, Rankine Company paid $8,500,000 for land and a building. An appraisal estimated that the land had a fair value of $2,500,000 and the building was worth $6,000,000. Rankine estimated that the useful life of the building was 30 years, with

> What is the conceptual reason why income tax expense on the income statement is not equal to cash taxes paid?

> Lambert Company acquired machinery costing $110,000 on January 2, 2019. At that time, Lambert estimated that the useful life of the equipment was 6 years and that the residual value would be $15,000 at the end of its useful life. Compute depreciation exp

> Under the new lease accounting standard (Topic 842), what are the financial reporting differences between an operating lease and a finance lease? Explain.

> Palepu Company owns and operates a delivery van that originally cost $27,200. Straight-line depreciation on the van has been recorded for three years, with a $2,000 expected salvage value at the end of its estimated six-year useful life. Depreciation was

> What do the following terms mean? (a) bonds payable, (b) call provision, (c) face value, (d) coupon, (e) bond discount, (f) bond premium, and (g) amortization of bond premium or discount.

> A delivery van costing $18,000 is expected to have a $ 1,500 salvage value at the end of its useful life of 5 years. Assume that the truck was purchased on January I, 2019. Compute the depreciation expense for 2020 (its second year) under each of the fol

> Jason Shields invested $7,500 in an account that pays a 12% return. How much will the account be worth in four years if the interest is compounded a. annually? b. quarterly? c. monthly?

> On January 2, 2019, Dechow Company purchases a machine to help manufacture a part for one of its key products. The machine cost $218,700 and is estimated to have a useful life of six years, with an expected salvage value of $23,400. Compute each year's d

> How would you interpret a company's reported gain or loss on the repurchase of its bonds?

> On January 2, 2019, Verdi Company acquired a machine for $85,000. In addition to the purchase price, Verdi spent $2,000 for shipping and installation, and $2,500 to calibrate the machine prior to use. The company estimates that the machine has a useful l

> How do debt ratings affect the cost of borrowing for a company?

> The following table presents sales revenue, cost of goods sold, and inventory amounts for three specialty retailers, Tiffany & Co., Best Buy, and RH. a. Compute the gross profit margin (GPM) for each of these companies for 2017 and 2016. b. Compute t

> The footnote below is from the 2017 I 0-K report of Whole Foods Market, Inc., a Texas-based retail grocery chain. Inventories The Company values inventories at the lower of cost or market. Cost was determined using the dollar value retail last-in, first-

> What is the difference between a bond coupon rate and its market interest rate (yield)?

> How does issuing a bond at a premium or discount affect the bond's effective interest rate vis-à-vis the coupon (stated) rate?

> Sylvia Owen, owner of Haul Trucking is considering expanding operation from seaule to the Portland area. Expansion is estimated to cost %10 million including the required new facilities and additional trucks. Sylvia has elected to finance the expansion b

> What is an accrual? How do accruals impact the balance sheet and the income statement?

> Crane Company had the following inventory at December 31. 2017. a. Determine the ending inventory amount by applying the lower of cost or net realizable value rule to 1. Each item of inventory. 2. Each major category of inventory. 3. Total inventory. b.

> What is the justification for using the net-of-discount method to record inventory purchases when cash discounts are offered?

> Stockcn Company has the following financial records for the current period: Ending inventory at the end of this period is 350 units. Compute the ending inventory and the cost of goods sold for the current period using (a) first-in, first-out. (b) avera

> How does issuing bonds at a premium or discount "adjust the contract rate to the applicable market rate of interest"?

> At the beginning of the current period, Chen carried 1,000 units of its product with a unit cost of $20. A summary of purchases during the current period follows: During the current period, Chen sold 2,800 units. a. Assume that Chen uses the first-in, fi

> A $3.000,000 issue of 10-year, 9% bonds was sold at 98 plus accrued interest three months after the bonds were dated. What net amount of cash is received?

> West Marine, Inc., opened its first boating supply store in 1975. Since that time, the company has grown to be one of the largest boating supply companies in the world, with fiscal year 2014 revenues in excess of $675 million. The accompanying table prov

> What are the advantages and disadvantages of issuing bonds rather than common stock?

> For each of the following items, indicate whether the cost should be capitalized or expensed immediately: a. Paid $1,200 for routine maintenance of machinery b. Paid $5,400 to rent equipment for two years c. Paid $2,000 to equip the production line with

> BJ's Wholesale Club Holdings, Inc. provides the following description of its revenue recognition policies for membership fees and its reward program. Performance Obligations The Company identifies each distinct performance obligation to transfer goods (o

> What does the term current Liabilities mean? What assets are usually used to settle current liabilities?

> The Metropolitan Opera Association, Inc., was founded in 1883 and is widely regarded as one of the world's greatest opera companies. The Metropolitan's performances run from September to May, and the season may consist of more than two dozen different op

> Why are some intangible assets amortized while others are not? What is meant by an intangible asset with an " indefinite life"?

> What is the proper accounting treatment for research and development costs? Why are R&D costs not capitalized under GAAP?

> Barth Company, which has been in business for three years, makes all of its sales on credit and does not offer cash discounts. Its credit sales, customer collections, and write-offs of uncollectible accounts for its first three years follow: a. Barth use

> When is a PPE asset considered to be impaired? How is the impairment loss determined?

> At December 3 I, 2019, Sunil Company had a balance of $375,000 in its accounts receivable and an unused balance of $4,200 in its allowance for uncollectible accounts. The company then aged its accounts as follows: The company has experienced losses as fo

> What factors determine the gain or loss from the sale of a long-term operating asset?

> Wolf Inc. establishes a construction fund on July I, 2019, by making a single deposit of $360,000. At the end of each year, Wolf will deposit an additional $60,000. The fund guarantees a 12% return each year. How much will be in the fund on June 30, 2023

> At the beginning of 2019, Penman Company had the following (normal) account balances in its financial records: During 2019, its credit sales were $1,173,000 and collections on credit sales were $1,150,000. The following additional transactions occurred d

> How should a company treat a change in an asset's estimated useful life or residual value? Which period(s)-past, present, or future-is affected by this change?

> Steelcase, Inc. reported the following amounts in its 2018 and 2017 10-K reports (years ended February 23, 2018 and February 24. 2017. a. Prepare the journal entry to record accounts receivable written off as uncollectible in 2018. Also prepare the entry

> Why do companies use accelerated depreciation for income tax purposes, when the total depreciation taken over the asset's useful life is identical to straight-line depreciation?

> Lafond Company analyzes its accounts receivable at December 31, 20 19, and arrives at the aged categories below along with the percentages that are estimated as uncollectible. At the beginning of the fourth quarter of 2019. there was a credit balance of

> Why is the recognition of depreciation expense necessary for proper expense recognition?

> Simply Technologies, Inc., manufactures electronic equipment used to facilitate control of production processes and tracking of assets using RFID and other technologies. Since its initial public offering in 1996, the company has shown consistent growth i

> What is the effect of capitalized interest on the income statement in the period that an asset is constructed? What is the effect in future periods?

> LVMH Moet Hennessy Louis Vuitton SE (LVMH) is a French multinational luxury goods conglomerate headquartered in Paris. The following information is selected from their 2017 annual report. LVMH has an income tax rate of approximately 30%. a. Compute LVMH'

> Under what circumstances should a company report goodwill in its balance sheet? What is the effect of goodwill on the income statement?

> Use the following year-end footnote information from Cisco Systems, Inc. 's I 0-K report to answer parts a and b. a. At what amount is its available-for-sale investments reported on Cisco's 20 18 balance sheet? Explain. b. How is its net unrealized loss

> Amazon.com, Inc. provides the following description of its revenue recognition policies in its second quarter of 2018 I 0-Q report. Revenue Revenue is measured based on the amount of consideration that we expect to receive, reduced by estimates for retur

> How should companies account for costs, such as maintenance or improvements, which are incurred after an asset is acquired?

> Floyd Corporation is a large engineering and construction company that designs and builds office buildings, apartment buildings, distribution warehouses and other structures for its customers. Projects usually begin with a design and engineering phase, f

> What is a LIFO reserve? How is the LIFO reserve related to unrealized holding gains?

> Assume that General Electric Company agreed in February 2019 to construct an electricity generating facility for Ever source Energy, a utility serving the Boston area. The contract price of $500 million is to be paid as follows: $200 million at the time

> What is inventory "shrink?" How does a company determine the amount of inventory shrink that may have occurred?

> Haskins, Inc. has reached an agreement with a customer, Skaife Corporation, to deliver 200 units of a customized product. The standard billing price per unit is $1,000, and there are no discounts, so Skaife Corporation will pay $200,000 in total. At the

> Under what conditions would each of the inventory costing methods discussed in the chapter produce the same results?

> Discuss and justify when each of the following businesses should recognize revenues: a. A clothing retailer like L Brands, Inc. b. A contractor like The Boeing Company that performs work under long-term government contracts. c. An operator of grocery sto

> In a recent annual report, Kaiser Aluminum Corporation made the following statement in reference to its inventories: "The Company recorded pretax charges of approximately $ 19.4 million because of a reduction in the carrying values of its inventories cau

> On September 1, 2018, Luft, Inc. deposited $400,000 in a debt retirement fund. The company needs $955,000 cash to settle a maturing debt September I, 2026. What is the minimal rate of compound interest required to assure the debt will be paid when due?

> Refer to the income statements for The Gap, Inc., presented in ES-34. a. Prepare common-size income statements for fiscal years 2017 (ending February 3, 2018) and 2016 (ending January 28, 2017). b. Prepare an income statement forecast for the fiscal year

> Even though it does not reflect their physical flow of goods, why might companies adopt last-in, first-out inventory costing in periods when costs are consistently rising?

> Doug Stevens, controller of Nexgen, Inc., has asked his assistant, Gayle Sayres, for suggestions as to how the company can improve its reported financial performance for the year. The company is in the last quarter of the year and projections to the end

> If inventory costs are rising, which inventory costing method- first-in, first-out; last-in, first-out; or average cost-yields the (a) lowest ending inventory? (b) lowest net income? (c) largest ending inventory? (d) largest net income? (e) greatest

> Demski, Inc., manufactures heating and cooling systems. It has a 75% interest in Asare Company, which manufactures thermostats, switches, and other controls for heating and cooling products. It also has a 100% interest in Demski Finance Company, created

> What is one explanation for increased gross profit during periods of rising inventory costs when FIFO is used?