On January 1, 2016, for $18 million, Cenotaph Company purchased 10% bonds, dated
January 1, 2016, with a face amount of $20 million. For bonds of similar risk and
maturity, the market yield is 12%. Interest is paid semiannually on June 30 and
December 31.
Required:
1> Prepare the journal entry to record interest on June 30, 2016, using the effective
interest method.
2> Prepare the journal entry to record interest on December 31, 2016, using the
effective interest method.
Alpaca Corporation had revenues of $200,000 in its first year of operations. The
company has not collected on $20,000 of its sales and still owes $25,000 on $70,000 of
merchandise it purchased. The company had no inventory on hand at the end of the
year. The company paid $15,000 in salaries. Owners invested $20,000 in the business
and $20,000 was borrowed on a five-year note. The company paid $2,000 in interest
that was the amount owed for the year, and paid $6,000 for a two-year insurance policy
on the first day of business. Alpaca has an effective income tax rate of 40%.
Compute net income for the first year for Alpaca Corporation.
The condensed balance sheet and income statement for Marjoram Company are
presented below.
Compute the times interest earned ratio for Marjoram Company. Round your answer to
two decimal places.
Bronco Electronics’ current assets consist of cash, marketable securities, accounts
receivable, and inventories. The following data were abstracted from a recent financial
statement:
Required: Compute the following for Bronco:
Current assets
Use I = Increase, D = Decrease, or N = No effect, to indicate the effect on retained
earnings for each of the listed transactions.
____ Declaration of a property dividend.
____ Net income for the year.
____ Purchase of treasury stock at a cost greater than the original issue price.
____ Purchase of treasury stock at a cost less than the original issue price.
____ Issue common stock.
____ Resale of treasury stock for less than cost, assuming no previous treasury
stock sales.
____ Resale of treasury stock for more than cost.
) Prepare a balance sheet as it would appear immediately after the restatement.
Weaver Textiles Inc. has used the straight-line method to depreciate its equipment since
it started business in 2012. At the beginning of 2016, the company decided to change to
the double-declining-balance (DDB) method. Depreciation as reported and as it would
have been reported if the company had always used DDB is listed below:
Required:
What journal entry, if any, should Weaver make to record the effect of the accounting
change (ignore income taxes)? Explain.
Like U.S. GAAP, International Financial Reporting Standards (IFRS) also require a
statement of cash flows. Consistent with U.S GAAP, cash flows are classified as
operating, investing, or financing activities. However, with regard to interest and
dividend inflows and outflows, the international standard for cash flow statements:
a. Allows companies to report cash outflows from interest payments as either operating
or investing cash flows.
b. Allows companies to report cash inflows from interest and dividends as either
operating or investing cash flows.
c. Allows companies to report dividends paid as either investing or operating cash
flows.
d. Designates cash outflows for interest payments and cash inflows from interest and
dividends received as operating cash flows.
