Name Class Date ACCOUNTING ILEXAM II SUMMER 2018 THOMASG SMI

Name Class: Date:, ACCOUNTING ILEXAM II SUMMER 2018 THOMASG. SMITH CPA b. loss on redemption of bonds is debited e. retained earnings is credited d. retained earnings is debited 15. Parker Company owns 83% of the outstanding stock ofTadeo Company. Parker Company inferred to ide a parent b. minority interest c. affiliate d. subsidiary 16. Gale Cormpany owns 87% of the outstanding stock of Leonardo Company. Leonardo Company inimdto\" t. a. parent b, minority interest e. affiliate d. subsidiary 17. Financial statements in which financial data for two or more companies are combined as a single entity are called a conventional statements e audited statements d. constitutional statements 18. In general, consolidated financial statements should be prepared a. when a corporation owns more than 20% and less than 40% of the common stock of another b. when a corporation owns more than 50% of the common stock of another company c, only when a corporation owns 100% of the common stock of another company d. whenever the market value of the stock investment is significantly lower than its cost company 19. If $1,000,000 of 8% bonds are issued at 102 34, the amount of cash received from the sale is a. $1,080,000 b. $972,500 c. $1,000,000 d. $1,027,500 20. If$2,000,000 of 10% bonds are issued at 97, the amount of cash received from the sale is a. $2,060,000 b. $2,000,000 e. $2,100,000 d. $1,940,000 21. Eddie Industries issues $1,500,000 of 8% bonds at 105, the amount of cash received from the sale is a. $1,425,000 b.S1,080,000 c. $1,000,000 Copyright Cengage Leaming Powered by Cognero

Solution

15) Any company holding >50% stock is regarded as Parent Company.

16) A company in which any other comapny holds >50% stock is regarded as its Subsidiary Company.

17) Financial Statements in which financial data for two or more companies are combined in a single entity are called Consolidated Statements.

18) Consolidated Financial Statements should be prepared when a company owns more than 50% of the common stock of another co i.e. its subsidiary.

19) If $1,000,000 8% bonds are issued at 102 3/4, cash received from sale is $$1,027,500

20) If $2,000,000 10% bonds are issued at 97, cash received from sale is $$1,940,000

21) If $1,500,000 10% bonds are issued at 105 by eddie Industries, cash received from sale is $$1,575,000

Q22-Q24 NOT VISIBLE

25) Carrying amount of Bond= $292,000 but redemption value = $300,000 * 98/100 = $ 294,000

So,Loss will be booked of $2,000 as redemption value exceeds carrying amount.

26) Carrying amount of Bond= $316,000 but redemption value = $300,000 * 104/100 = $ 312,000

So, Profit will be booked of $4,000 as redemption value is less than carrying amount.

27) Times Interest Earned Ratio= Income before Interest and Taxes/ Interest Expense

= ($320,000 + 6% of $1,200,000)/72,000

= $392,000/72000

= 5.44

28) No of times interest charges are computed as:-

Income before Income Taxes + Interest Expense (i.e EBIT)

29)

Times Interest Earned Ratio= Income before Interest and Taxes/ Interest Expense

= ($340,000 + 6% of $1,200,000)/72,000

= $412,000/72000

= 5.72

30) Present Value of $60,000 to be received in 1 year @ 6% p.a compounded annualy :-

=$60000/1.06

=$56,604

31) Face Value= $1,000,000. Interest Rate= 11%. Maturity= 10 years. Interest payable annually.

Market Interest Rate= 12%

Selling Price = $1,000,000 * PVIF (12%,10) + $ 110,000 * PVAF (12%,10)

= $1,000,000*0.3220+$110,000*5.6502

= $322,000 + $621,522

= $943,522

I.E APPROXIMATELY OPTION NO C. - $943,494