Your Questions About Stocks And Bonds 2012

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Joseph asks…

Why hasn’t the story on Exxon been pushed through the media?

Friday there was an article about Exxon on MSN and of course it didn’t stay up for long!

For those of you who didn’t get a chance to read it, here is a brief summary. I said that they had slowed down production of oil because they knew prices would skyrocket and their share holders would be happy! It stated that they don’t care about the consumer, they care about their stock holders. At a resent meeting they flashed a chart showing the companies worldwide production staying flat through 2012!

Now, once again. Why isn’t this story being plastered on evey news station in the country? They are doing this to us on purpose and our Government is allowing it! Why isn’t there one reporter with the balls to break this story out, keep it out until it gets nation wide attention! And while they are at it expose are politicians who reside on the boards of the oil companies, hold stocks and bonds in them and the rest of the political ties within the oil companies!

financi4 answers:

A lot of people think the media is so ‘liberal’, well if so, why aren’t they all over this news story and many more alike?

Chris asks…

URGENT FINANCIAL ACCOUNTING QUESTIONS …?

I am trying to finish up a 100 question homework assignment and I am stumped on the following 7 questions … can someone please help me answer so I can review and see how you got the answer trial by error?

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#1

On May 1, 2011, Stanton Company purchased $50,000 of Harris Company’s 12% bonds at 100 plus accrued interest of $2,000. On June 30, 2011, Stanton received its first semiannual interest. On February 1, 2012, Stanton sold $40,000 of the bonds at 103 plus accrued interest.

When the cost method is used to account for an investment, the carrying value of the investment is affected by

A) the periodic net income of the investee.
B) the earnings and dividend distributions of the investee.
C) neither the earnings nor the dividends of the investee.
D) the dividend distributions of the investee.

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#2

On May 1, 2011, Stanton Company purchased $50,000 of Harris Company’s 12% bonds at 100 plus accrued interest of $2,000. On June 30, 2011, Stanton received its first semiannual interest. On February 1, 2012, Stanton sold $40,000 of the bonds at 103 plus accrued interest.

Held to maturity securities

A) are reported at fair market value
B) include stocks as well as bonds
C) may be reported as current or noncurrent assets
D) all of the above

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#3

On June 1, $40,000 of treasury bonds were purchased between interest dates. The broker commission was $600. The bonds pay interest at 12%, which is paid semiannually on January 1 and July 1. How much interest revenue will be recorded on July 1?

A) $406
B) $2,000
C) $400
D) $2,400

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#4

On May 1, 2011, Stanton Company purchased $50,000 of Harris Company’s 12% bonds at 100 plus accrued interest of $2,000. On June 30, 2011, Stanton received its first semiannual interest. On February 1, 2012, Stanton sold $40,000 of the bonds at 103 plus accrued interest.

Armando Company owns 15,000 of the 50,000 shares of common stock outstanding of Tito Company and exercises a significant influence over its operating and financial policies. The investment should be accounted for by the

A) equity method
B) debit Investment in Worton Corporation; credit Income of Worton Corporation
C) cost method
D) cost or market method

– – –
#5

On June 1, $40,000 of treasury bonds were purchased between interest dates. The broker commission was $600. The bonds pay interest at 12%, which is paid semiannually on January 1 and July 1. What is the total cost to be debited to the Investment – Treasury Bonds account?

A) $42,000
B) $42,600
C) $40,600
D) $40,000

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#6

On May 1, 2011, Stanton Company purchased $50,000 of Harris Company’s 12% bonds at 100 plus accrued interest of $2,000. On June 30, 2011, Stanton received its first semiannual interest. On February 1, 2012, Stanton sold $40,000 of the bonds at 103 plus accrued interest.

If one company owns more than 50% of the common stock of another company

A) a parent–subsidiary relationship exists.
B) the company whose stock is owned must be liquidated
C) a partnership exists.
D) the cost method should be used to account for the investment.

– – –
#7

On May 1, 2011, Stanton Company purchased $50,000 of Harris Company’s 12% bonds at 100 plus accrued interest of $2,000. On June 30, 2011, Stanton received its first semiannual interest. On February 1, 2012, Stanton sold $40,000 of the bonds at 103 plus accrued interest.

An investor purchased 500 shares of common stock, $25 par, for $21,750. Subsequently, 100 shares were sold for $40.50 per share. What is the amount of gain or loss on the sale?

A) $1,550 gain
B) $300 loss
C) $4,050 gain
D) $300 gain

financi4 answers:

Too long, section it up

George asks…

Basic and Diluted EPS?

Problem 2:

The ZKO Company’s stockholders’ equity section of the balance sheet as of December 31, 2011 follows:
Preferred stock, 8%, $50 par, (10,000 shares authorized, 2,000 shares issued and outstanding)$100,000
Common stock, $7 par (180,000 shares authorized, 50,000 shares issued and outstanding)350,000
Total capital stock$450,000
Additional paid-in capital300,000
Total paid-in capital$750,000
Retained earnings870,000
Total stockholder’s equity$1,620,000

The ZKO Company took the following actions during 2012:
1.On February 1, issued dividend payments in the amount of $3.00 per common share and $4.00 per preferred share. The dividends were declared by the Company’s board of directors on December 31, 2011.

2.On March 1, on the open stock market, purchased 7,500 shares of its own common stock at $32.

3.On April 1, acquired equipment valued at $100,800 in exchange for 3,000 of the shares of its own common stock purchased on March 1.

4.On May 1, issued 500 shares of preferred stock at $53 per share.

5.On June 1, the board of directors declared a 7% stock dividend on its outstanding common stock. On the date of the dividend, the stock was trading in the stock market at $36 per share.

6.On August 1, the company issued the stock dividend that was declared on June 1.

7.On December 31, the board of directors declared a dividend in the amount of $3.00 per common share and $4.00 per preferred share. The dividends will be paid on February 1 of the next year.

Instructions:

A.Assuming that the ZKO Company uses the cost method to account for treasury stock, prepare the journal entries necessary to record the above transactions for 2012.

B.Assuming that net income for 2012 was $730,000, prepare the stockholder’s equity section of the Company’s balance sheet as of December 31, 2012.
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Problem 3:

The SDJ Company’s condensed partial income statement for the year 2013 follows:

Revenue$448,000
Expenses other than interest and taxes246,000
Net income before interest and taxes$202,000

All during 2013 the company had 56,000 shares of common stock issued and outstanding.

The Company’s income tax rate is 37%.

The Company issued 160, 12% convertible bonds at their face value of $1,000. Each bond may be converted to 100 shares of common stock.

Instructions:

Compute the basic and diluted earnings per share for 2013 in each of the following independent situations:

(Note: Compute EPS to the penny.)

A. The bonds were issued during 2012. During 2013 none of the bonds were converted.

B. The bonds were issued on September 1, 2013. During 2013 none of the bonds were converted.

C.The bonds were issued during 2012. 40 of the bonds were converted on June 1, 2013.

Someone please help me with these. I have already handed in the assignment uncompleted. I tried to figure these out but i dont know where i kept going wrong. I tried everything i knwe and could not seem to understand it. Could someone please walk me though these so i can better understand them and be more prepared the next time i have simular exercises to do.
Thanks so much. This will definitely help me to understand it better on my next assignment.

financi4 answers:

Regarding Problem 3 –
(A) Net Income – 202,000 less interest on bonds, at 12% of 160,000, or 19,200 = 182,800 less tax at 37% = NAT of 115,164 / 56,000 shs = 2.06 Basic EPS. If converted on Jan 1, 2013, pretax income becomes 202,000, and NAT becomes 127,260 / 72,000 shs (56,000 + 16,000) = 1.77 EPS, Diluted.

(B) If issued 9/1/ 2013, only 4 mos interest accrues in 2013. Net Income – 202,000 – 6,400, less tax, leaves NAT of 123,228 / 56,000 shs = 2.20 Basic EPS. But on a diluted basis, use the weighted average common shares outstanding. 56,000 for 12 mos + 5,333 (4/12 of 16,000), total 61,333. So NAT 123,228 / 61,333 = 2.01 EPS Diluted

(C) If 40 bonds were converted on June1, then interest was reduced accordingly, and avg common shares o/s were 56,000 + 4,000 for 7 mos, or 58,333 weighted avg o/s. On a diluted basis, only consider the 120 bonds, both to reduce interest expense for 12 mos, and to increase shares o/s.

Ken asks…

Accounting Problem: stock warrants?

On May 1, 2012, Marly Co. issued $1,000,000 of 7% bonds at 103, which are due on April 30, 2022. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Marly’s common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2012, the fair value of Marly’s common stock was $35 per share and of the warrants was $2.

On May 1, 2012, Marly should record the bonds with a discount of ?

On May 1, 2012, Marly should credit Paid-in Capital from Stock Warrants for?

financi4 answers:

Record the bonds with a discount of $40,000.
Record the stock warrants with a Paid-in credit of $70,000.

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