1. For each of the following cases, identify the accounting concept(s) or principle(s) that are being violated. In each case, give a general description of the requirements of the concept(s) or principle(s) and state exactly how they are being violated.
B. The owner of a company has a son who just started attending a university this past September. The owner instructs the controller of the company to pay the tuition bill out of company funds and to deduct the payment as an operating expense of the business.
C. The controller of a company prepares financial statements only when he believes something interesting has happened that shareholders want to know about.
D. The company owns a piece of land that has declined in value due to worsening general economic conditions. To help disclose this fact, management presents this land on its balance sheet at a value based on a current appraisal.
2. The Dallas Cowboys Corporation obtained a charter from the City of Austin authorizing 200,000 shares of $5 par value common stock and 8,000 shares of 6 percent, $50 par value cumulative preferred stock.
Listed below are various accounts taken from the general ledger of the Dallas Cowboys Corporation. Assuming all accounts have normal balances, prepare the stockholders' equity section of the balance sheet for the Dallas Cowboys Corporation as of Dec. 31, 2003.
Organization Costs 5,800
Common Stock 675,000
Retained Earnings 492,300
Additional Paid-in-Capital - Preferred 14,000
Dividends Payable 33,500
Preferred Stock 175,000
Revenue from Donations 82,000
Additional Paid-in-Capital - Common 337,500
2. Bulldogs Outerwear Corporation has 65,000 shares of $5 par value common stock outstanding. The average issue price of this stock was $8.25 per share, and its current market value is $9.50 per share. The board of directors has just announced a 10 percent common stock dividend.
A. Prepare the necessary journal entries to record the declaration and distribution of the common stock dividend.
B. Discuss the reasons why corporations issue stock dividends.
3. LL Bean and Visa cards issued $1,000,000 of 8 percent bonds payable at $97 on Oct. 1, 1998. These bonds mature on Oct. 1, 2006, and are callable at $101. Whitney pays interest each April 1st and October 1st. On Oct. 1, 2003, when the bonds' market price is $104, LL Bean retires the bonds. In general journal form, record the payment of interest and amortization of bond discount on Oct. 1, 2003, and the retirement of bonds on that date. Whitney uses the straight-line amortization method.
The solution explains the accounting concept or principle being violated in the given situations.