Financial Accounting: An Integrated Statements Approach, 2nd Edition

Chapter 12 Special Income and Investment Reporting Issues 573

Dec. 31 Received the semiannual interest on the Churchill Company bonds.

31 Recorded bond discount amortization of $240 on the Churchill Company bonds. The

amortization amount was determined by using the straight-line method.

(Assume that all intervening transactions and adjustments have been properly

recorded and that the number of bonds owned has not changed from December 31,

2006, to December 31, 2010.)

2011

June 30 Received the semiannual interest on the Churchill Company bonds.

Oct. 31 Sold one-half of the Churchill Company bonds at 96^1 – 2 plus accrued interest. The broker

deducted $400 for commission, etc., remitting the balance. Prior to the sale, $300 of

discount on one-half of the bonds was amortized, reducing the carrying amount of those

bonds to $194,720.

Dec. 31 Received the semiannual interest on the Churchill Company bonds.

31 Recorded bond discount amortization of $360 on the Churchill Company bonds.

Instructions

Journalize the foregoing transactions.

Recent year-end market price and financial statement information for Wal-Mart Stores, Inc., the

largest retailer in the world, is provided as follows:

Year-End Net Income Common Stock Number of Common

Market Price (basic, Dividend per Shares Outstanding

Year per Share millions) Share (weighted, millions)

2004 $52.33 $10,267 $0.52 4,259

2003 51.33 9,054 0.36 4,363

2002 48.75 7,955 0.30 4,430

a. How has the market price of Wal-Mart compared to earnings per share for 2002–2004?

Round to two decimal places.

b. What information should be reported to compare earnings over time and across companies?

In the notes to its 2004 annual report, Boeing Co.provided the following information regarding

the 717 airplane termination:

On January 12, 2005 we decided to conclude production of the 717 commercial airplane...

due to the lack of overall market demand for the airplane. The decision is expected to result in

total pre-tax charges of approximately $385, of which $280 is incorporated in the 2004 fourth

quarter and year end results.

Of the $280 charge...,supplier termination charges were $171; production disruption and

related charges were $36; pension/post-retirement curtailment charges were $43; and severance

charges were $30. The termination of the 717 line will result in $385 of cash expenditures that

are expected to occur during 2005 through 2007.

a. Record the $280 million charge for 2004 using account names suggested by the note.

b. Provide a brief description of the nature of each special charge.

b. Assume the severance charges are paid in cash in 2005. Record the appropriate entry in

2005.

c. Why wasn’t the total $385 million expected cash expenditures recorded as a charge in

2004?

Goal 4

Case 12-1

Market-based financial
measures

Case 12-2

Special charges

FINANCIAL ANALYSIS AND REPORTING CASES