Exam 7: Financing Activities

Following is the shareholders' equity section of Morgan Supplies on a day its common stock is trading at $77 per share. Common stock (2 par value, 30,000 shares issued and autstanding \6 0,000 Addlitional paid-in capital an comman stock 1,200,000 Retained earnings 3,000,000 Required: a.Use the financial statement template below to show the financial statement effects of the following dividend events.(Assume that the events are independent.) (1)Cash dividend declaration and payment of $1 per share (2)Property dividend declaration and payment of shares representing a short-term investment in Screen Products,Ltd.,with a fair value of $15,000 (3)10 percent stock dividend (4)100 percent stock dividend (5)3-for-1 stock split (6)1-for-2 reverse stock split Journal entry (optional): b.Which events changed the book value of common equity? c.Under what conditions will these events lead to future increases and decreases in ROE?

Under U.S.GAAP,which of the following items would require a lessee to classify a lease of equipment as a capital lease?

One criterion that must be satisfied for a firm to recognize an obligation is that the transaction or event giving rise to the obligation has already ____________________.

Convertible preferred stock has both the attributes of _____________ and __________________________.

Discuss the method of accounting for employee stock options.In your answer discuss the how the accounting has changed during recent years.

Where in the financial statements are changes in the fair value of cash flow hedges reported:

On January 1, 2012, Porter Corporation signed a five-year non-cancelable lease for certain machinery.The terms of the lease called for: 1) Price to make annual payments of \$60,000 at the end of each year (starting an Dec. 31, 2012) Far Ene years. Parter must return the equigment to the lessor end of this periad. 2) The machinery has an estimated useful life of o years and no exgected salvage value. 3) Parter uses the straight-line method af depreciation far all of its fixed assets. 4) Parter's incremental barrowing rate is $8 \%$ 5) The fair value of the asset at January 1,2012 is $\$ 27,000$ . -What accounting method should Porter use to account for the equipment lease?

Summarize how the following information about Crank Corp.'s restructuring would affect the balance sheet and income statement summary chart below.Crank Corp.'s restructuring will take approximately 18 months and was announced on March 15,2010: (1) On March 15,2010 Crank Corp. announced its restructuring and recognized a restructuring charge of $\$ 845,000$ . (2) The tax effect of the restructuring charge was estimated to be $\$ 230,000$ . (3) Crank determined that the cost of disposing and removing facilities and equipment during $2010 \$ 312,000$ . (4) The tax effect associated with the disposal and removal of facilities and equipment are $\$ 95,000$ . (5) Crank Corp. made cash payments to severed employees and lessors for lease terminations in 2010 equal to $\$ 78,000$ . (6) The tax effect of the severance payments and lease cancellations was $\$ 19,000$ .

Santa Corporation NOTE: These multiple choice questions require present value information. Santa Corporation manufactures Christmas decorations and supplies throughout the world.The company owns property, plants, and equipment and also enters into operating leases for certain facilities.Assume that Santa's incremental borrowing rate is 8%.The company's tax rate is 40%.Listed below are selected financial data for Santa and a portion of the company's operating lease footnote. 2012 2011 2010 Property, Plant, \& Equipment (net) \ 882,468 \ 717,453 \ 658,214 Total Assets 1,756,854 1,405,484 1,254,896 Common Shareholders' Equity 867,992 652,626 587,951 Sales \ 2,922,915 \ 2,415,632 Cost of Goods Sold 2,016,811 1,642,630 Depreciation Expense 78,584 67,542 Interest Expense 106,663 90,343 Net Income 248,448 217,407 sante corp. Operatine Laraca Disclasure (anounts in thausands) Operating Lease Camnitsents at the end of 2012 Year Reported Lease Commitments 2013 \ 148,239 2014 \ 252,800 2015 \ 278,327 2016 \ 279,210 2017 \ 285,452 Beyond 2017 \ 2471,600 -Using the information provided by Santa Corporation,estimate the average life of the operating leases.

Discuss the difference between transferring receivables with and without recourse. When a company transfers receivables to the factor without recourse the factor pays the company a percentage of the total receivables and in effect it is a sale of the receivables to the factor. The factor takes the receivables with recourse if any uncollected receivables can be returned to the company for a refund.

Which is the date when a firm gives a stock option to employees?

Which kind of dividend has an interest-bearing promise to pay dividends?

Santa Corporation NOTE: These multiple choice questions require present value information. Santa Corporation manufactures Christmas decorations and supplies throughout the world.The company owns property, plants, and equipment and also enters into operating leases for certain facilities.Assume that Santa's incremental borrowing rate is 8%.The company's tax rate is 40%.Listed below are selected financial data for Santa and a portion of the company's operating lease footnote. 2012 2011 2010 Property, Plant, \& Equipment (net) \ 882,468 \ 717,453 \ 658,214 Total Assets 1,756,854 1,405,484 1,254,896 Common Shareholders' Equity 867,992 652,626 587,951 Sales \ 2,922,915 \ 2,415,632 Cost of Goods Sold 2,016,811 1,642,630 Depreciation Expense 78,584 67,542 Interest Expense 106,663 90,343 Net Income 248,448 217,407 sante corp. Operatine Laraca Disclasure (anounts in thausands) Operating Lease Camnitsents at the end of 2012 Year Reported Lease Commitments 2013 \ 148,239 2014 \ 252,800 2015 \ 278,327 2016 \ 279,210 2017 \ 285,452 Beyond 2017 \ 2471,600 -Using the information provided by Santa Corporation,calculate the company's 2012 fixed asset ratio.

Which is the first date when employees can exercise their stock options?

Regarding accounting for troubled debt,which of the following statements is true?

Which kind of dividend typically pays dividends with investments in other corporations' stock?

Derivatives are financial instruments that derive their value from changes in any of the following underlying securities except:

Many firms use derivative instruments to hedge exposure to changes in the fair value of an asset or liability,or to hedge exposure to variability in expected future cash flows.As an analyst examining the financial reports of a company that uses derivative instruments to hedge,what questions should you ask when thinking about derivatives and accounting quality?

Which of the following best describes the accounting treatment for derivative instruments not held for purposes of hedging?

Which kind of dividend typically pays dividends with additional shares of the corporation's stock?