Chapter 12 Special Income and Investment Reporting Issues 559DISCUSSION QUESTIONS
- Knowledge Warehouse Inc. purchased for cash $120,000
of 8% bonds on September 1, 2006, at 102 plus accrued
interest, as an investment to be held to maturity. The
bonds pay interest on July 1 and January 1. If $80 of
premium on bond investment is amortized on
December 31, 2006, how much total interest revenue
should be recognized from these bonds in 2006?
A. $1,680 C. $3,280
B. $3,120 D. $4,720 - Maxwell Company owns an equipped plant that has a
book value of $150 million. Due to a permanent decline
in consumer demand for the products produced by this
plant, the market value of the plant and equipment is ap-
praised at $20 million. Describe the accounting treatment
for this impairment. - How should the severance costs of terminated employees
be accounted for? - During the current year, 40 acres of land that cost $200,000
were condemned for construction of an interstate high-
way. Assuming that an award of $350,000 in cash was
received and that the applicable income tax on this trans-
action is 40%, how would this information be presented
in the income statement? - Corporation X realized a material gain when its facilities
at a designated floodway were acquired by the urban re-
newal agency. How should the gain be reported in the in-
come statement? - A recent annual report of Viacom, Inc., the parent com-
pany of CBSandMTV, disclosed the sale of Blockbuster,
Inc.The estimated after-tax loss of these operations was
$1.1 billion. Indicate how the loss from discontinued op-
erations should be reported by Viacom on its income
statement. - If significant changes are made in the accounting princi-
ples applied from one period to the next, why should the
effect of these changes be disclosed in the financial
statements? - A corporation reports earnings per share of $1.38 for the
most recent year and $1.10 for the preceding year. The
$1.38 includes a $0.45-per-share gain from insurance
proceeds related to a fully depreciated asset that was
destroyed by fire.
a.Should the composition of the $1.38 be disclosed in
the financial reports?
b.On the basis of the limited information presented,
would you conclude that operations had improved or
declined? - The earnings per share impact from a restructuring charge
was calculated as a loss of $0.22 per share for Gotham
Company. How should this per share loss be disclosed
on the income statement? - How should earnings per share be reported when there
are unusual items disclosed below the income from con-
tinuing operations? - Why might a business invest in another company’s stock?
- How are temporary investments in marketable securities
reported on the balance sheet? - How are unrealized gains and losses on temporary in-
vestments in marketable securities reported on the state-
ment of comprehensive income? - a.What method of accounting is used for long-term in-
vestments in stock in which there is significant influ-
ence over the investee?
b.Under what caption are long-term investments in stock
reported on the balance sheet? - Plaster Inc. received a $0.15-per-share cash dividend on
50,000 shares of Gestalt Corporation common stock,
which Plaster Inc. carries as a long-term investment.
Assuming that Plaster Inc. uses the equity method of
accounting for its investment in Gestalt Corporation,
what account would be credited for the receipt of the
$7,500 dividend? - An annual report of The Campbell Soup Company
reported on its income statement $2.4 million as “equity
in earnings of affiliates.” Journalize the entry that
Campbell would have made to record this equity in earn-
ings of affiliates. - Where are investments in bonds that are classified as
held-to-maturity securities reported on the balance sheet? - At what amount are held-to-maturity investments in
bonds reported on the balance sheet? - Microsoft Corporationstock recently traded at $26 per
share and had earnings per share of $0.92. Determine
Microsoft’s price-earnings ratio. Round to two decimal
places. - Harkin Company has a market price of $60 per share
on December 31. The total stockholders’ equity is
$2,400,000, and the net income is $600,000. There are
200,000 shares outstanding. The price-earnings and
price-book ratios, respectively, are:
A. 5, 20. C. 20, 5.
B. 3, 5. D. 20, 12.