How many shares of Target's common stock were outstanding as of February 1, 2014?

Han's Supplies' bank statement contained a $270 NSF check that one of its customers had written to pay for supplies purchased.

Required

Record in general journal form the adjusting entry for the NSF check and the entry for redemption of the check by the customer.

Dana Harbert recently started a very successful small business. Indeed, the business had grown so rapidly that she was no longer able to finance its operations by investing her own resources in the business. She needed additional capital but had no more of her own money to put into the business. A friend, Gene Watson, was willing to invest $100,000 in the business. Harbert estimated that with Watson's investment, the company would be able to increase revenue by$40,000. Furthermore, she believed that operating expenses would increase by only 10 percent. Harbert and Watson agree that Watson's investment should entitle him to receive a cash dividend equal to 20 percent of net income. A set of forecasted statements with and without Watson's investment is presented here. (Assume that all transactions involving revenue, expense, and dividends are cash transactions.)

$$\begin{array}{lccccccccc} \textbf{Financial Statements}\\ \hspace{180pt}\textbf{Forecast 1}&\textbf{Forecast 2}\\ \hspace{180pt}\textbf{w/o Watson's} & \textbf{w/ Watson's}\\ \hspace{180pt} \textbf{Investment} & \textbf{Investment}\\ \\ \hspace{115pt}\text{Income Statements}\\ \\ \text{Revenue} \hspace{160pt} \$120,000 & \$160,000\\ \text{Operating expenses} \hspace{118pt} \underline{\text{(70,000)}} & \hspace{6pt} \underline{\text{(77,000)}}\\ \text{Income before interest and taxes} \hspace{70pt} \text{50,000} & \hspace{12pt} \text{83,000}\\ \text{Income tax expense (effective tax rate is 30\\\%)} \hspace{6pt} \underline{\text{(15,000)}} & \hspace{6pt} \underline{\text{(24,900)}}\\ \text{Net income} \hspace{149pt} \underline{\underline{\$ \hspace{5pt}35,000}} & \hspace{2pt} \underline{\underline{\$ \hspace{4pt}58,100}}\\ \\ \hspace{80pt}\text{Statements of Changes in Stockholders' Equity}\\ \\ \text{Beginning retained earnings} \hspace{78pt} \$ \hspace{5pt}15,000 & \hspace{3pt} \$ \hspace{2pt}15,000\\ \text{Plus: Net income} \hspace{137pt} \text{35,000} & \hspace{10pt} \text{58,100}\\ \text{Less: Dividend to Watson (20\\\% of \$58,100)} \hspace{48pt} \underline{\text{0}} & \hspace{10pt} \underline{\text{(11,620)}}\\ \text{Ending retained earnings} \hspace{91pt} \underline{\underline{\$ \hspace{5pt}50,000}} & \hspace{5pt}\underline{\underline{\$ \hspace{3pt}61,480}}\\ \\ \hspace{130pt}\text{Balance Sheets}\\ \\ \text{Assets} \hspace{172pt} \underline{\$400,000} & \hspace{5pt}\underline{\$511,480}\\ \text{Liabilities} \hspace{157pt} \$ \hspace{29pt}0 & \hspace{5pt} \$ \hspace{29pt}0\\ \text{Equity}\\ \text{\hspace{10pt}Common stock} \hspace{132pt} \text{350,000} & \hspace{10pt} \text{450,000}\\ \text{\hspace{10pt}Retained earnings} \hspace{124pt} \underline{\text{50,000}} & \hspace{15pt} \underline{\text{61,480}}\\ \text{Total liabilities and equity} \hspace{86pt} \underline{\underline{\$400,000}} & \hspace{5pt}\underline{\underline{\$511,480}}\\ \end{array}$$

The balance for assets in Forecast 1 is computed as the beginning balance of $365,000 plus net income of$35,000. The balance for assets in Forecast 2 is computed as the beginning balance of $365,000, plus the$100,000 cash investment, plus net income of $58,100, less the$11,620 dividend. Alternatively, total assets can be computed by determining the amount of total claims (total assets = total claims).

Harbert tells Watson that there would be a $3,486 tax advantage associated with debt financing. She says that if Watson is willing to become a creditor instead of an owner, she could pay him an additional$697.20 (that is, 20 percent of the tax advantage). Watson tells Harbert that he has no interest in participating in the management of the business, but Watson wants an ownership interest to guarantee that he will always receive 20 percent of the profits of the business. Harbert suggests that they execute a formal agreement in which Watson is paid 11.62 percent interest on his $100,000 loan to the business. This agreement will be used for income tax reporting. In addition, Harbert says that she is willing to establish a private agreement to write Watson a personal check for any additional amount necessary to make Watson's total return equal to 20 percent of all profits plus a$697.20 bonus for his part of the tax advantage. She tells Watson, "It's just like ownership. The only difference is that we call it debt for the Internal Revenue Service. If they want to have some silly rule that says if you call it debt, you get a tax break, then we are foolish if we don't call it debt. I will call it anything they want, just as long as I don't have to pay taxes on it."

Required

If you were Watson, would you permit Harbert to classify the equity transaction as debt to provide a higher return to the business and to you?

Sonic Corporation began business in 1953. In 2013, it was operating 3,522 drive-in hamburger restaurants throughout the United States and Mexico. The following data were taken from the company's 2013 annual report. All dollar amounts are in thousands.

$$\begin{array}{l} \hspace{95pt} \underline{\textbf{Fiscal Years Ending}}\\ \end{array}$$

$$\begin{array}{lcc} \textbf{Account Title} & \textbf{August 31, 2013} & \textbf{August 31, 2012}\\ \\ \text{Current assets} & \$140,722 & \$107,151\\ \text{Total assets} & \text{ \hspace{3pt}660,794} & \text{\hspace{6pt}680,760}\\ \text{Current liabilities} & \text{ \hspace{8pt}72,930} & \text{\hspace{11pt}80,516}\\ \text{Total liabilities} & \text{ \hspace{3pt}583,330} & \text{\hspace{6pt}621,513}\\ \text{Stockholders' equity} & \text{ \hspace{6pt}77,464} & \text{\hspace{10pt}59,247}\\ \text{Interest expense} & \text{ \hspace{7pt}29,098} & \text{\hspace{10pt}31,608}\\ \text{Income tax expense} & \text{ \hspace{7pt}19,598} & \text{\hspace{10pt}21,877}\\ \text{Net income} & \text{ \hspace{7pt}36,701} & \text{\hspace{9pt}36,085}\\ \end{array}$$

Required

Calculate the current ratio and debt-to-assets ratio for each year.

Dana Harbert recently started a very successful small business. Indeed, the business had grown so rapidly that she was no longer able to finance its operations by investing her own resources in the business. She needed additional capital but had no more of her own money to put into the business. A friend, Gene Watson, was willing to invest $100,000 in the business. Harbert estimated that with Watson's investment, the company would be able to increase revenue by$40,000. Furthermore, she believed that operating expenses would increase by only 10 percent. Harbert and Watson agree that Watson's investment should entitle him to receive a cash dividend equal to 20 percent of net income. A set of forecasted statements with and without Watson's investment is presented here. (Assume that all transactions involving revenue, expense, and dividends are cash transactions.)

$$\begin{array}{lccccccccc} \textbf{Financial Statements}\\ \hspace{180pt}\textbf{Forecast 1}&\textbf{Forecast 2}\\ \hspace{180pt}\textbf{w/o Watson's} & \textbf{w/ Watson's}\\ \hspace{180pt} \textbf{Investment} & \textbf{Investment}\\ \\ \hspace{115pt}\text{Income Statements}\\ \\ \text{Revenue} \hspace{160pt} \$120,000 & \$160,000\\ \text{Operating expenses} \hspace{118pt} \underline{\text{(70,000)}} & \hspace{6pt} \underline{\text{(77,000)}}\\ \text{Income before interest and taxes} \hspace{70pt} \text{50,000} & \hspace{12pt} \text{83,000}\\ \text{Income tax expense (effective tax rate is 30\\\%)} \hspace{6pt} \underline{\text{(15,000)}} & \hspace{6pt} \underline{\text{(24,900)}}\\ \text{Net income} \hspace{149pt} \underline{\underline{\$ \hspace{5pt}35,000}} & \hspace{2pt} \underline{\underline{\$ \hspace{4pt}58,100}}\\ \\ \hspace{80pt}\text{Statements of Changes in Stockholders' Equity}\\ \\ \text{Beginning retained earnings} \hspace{78pt} \$ \hspace{5pt}15,000 & \hspace{3pt} \$ \hspace{2pt}15,000\\ \text{Plus: Net income} \hspace{137pt} \text{35,000} & \hspace{10pt} \text{58,100}\\ \text{Less: Dividend to Watson (20\\\% of \$58,100)} \hspace{48pt} \underline{\text{0}} & \hspace{10pt} \underline{\text{(11,620)}}\\ \text{Ending retained earnings} \hspace{91pt} \underline{\underline{\$ \hspace{5pt}50,000}} & \hspace{5pt}\underline{\underline{\$ \hspace{3pt}61,480}}\\ \\ \hspace{130pt}\text{Balance Sheets}\\ \\ \text{Assets} \hspace{172pt} \underline{\$400,000} & \hspace{5pt}\underline{\$511,480}\\ \text{Liabilities} \hspace{157pt} \$ \hspace{29pt}0 & \hspace{5pt} \$ \hspace{29pt}0\\ \text{Equity}\\ \text{\hspace{10pt}Common stock} \hspace{132pt} \text{350,000} & \hspace{10pt} \text{450,000}\\ \text{\hspace{10pt}Retained earnings} \hspace{124pt} \underline{\text{50,000}} & \hspace{15pt} \underline{\text{61,480}}\\ \text{Total liabilities and equity} \hspace{86pt} \underline{\underline{\$400,000}} & \hspace{5pt}\underline{\underline{\$511,480}}\\ \end{array}$$

The balance for assets in Forecast 1 is computed as the beginning balance of $365,000 plus net income of$35,000. The balance for assets in Forecast 2 is computed as the beginning balance of $365,000, plus the$100,000 cash investment, plus net income of $58,100, less the$11,620 dividend. Alternatively, total assets can be computed by determining the amount of total claims (total assets = total claims).

Harbert tells Watson that there would be a $3,486 tax advantage associated with debt financing. She says that if Watson is willing to become a creditor instead of an owner, she could pay him an additional$697.20 (that is, 20 percent of the tax advantage). Watson tells Harbert that he has no interest in participating in the management of the business, but Watson wants an ownership interest to guarantee that he will always receive 20 percent of the profits of the business. Harbert suggests that they execute a formal agreement in which Watson is paid 11.62 percent interest on his $100,000 loan to the business. This agreement will be used for income tax reporting. In addition, Harbert says that she is willing to establish a private agreement to write Watson a personal check for any additional amount necessary to make Watson's total return equal to 20 percent of all profits plus a$697.20 bonus for his part of the tax advantage. She tells Watson, "It's just like ownership. The only difference is that we call it debt for the Internal Revenue Service. If they want to have some silly rule that says if you call it debt, you get a tax break, then we are foolish if we don't call it debt. I will call it anything they want, just as long as I don't have to pay taxes on it."

Required

Comment on the ethical implications of misnaming a financing activity for the sole purpose of reducing income taxes.

The following information pertains to Ming Corp. at January 1, 2016:

$$\begin{array}{lr} \text{Common stock, \$10 par, 50,000 shares authorized,}\\ \text{\hspace{10pt}3,000 shares issued and outstanding} & \$30,000\\ \text{Paid-in capital in excess of par, common stock} & \text{12,000}\\ \text{Retained earnings} & \text{46,000}\\ \end{array}$$

Ming Corp. completed the following transactions during 2016:

1. Issued 2,000 shares of $10 par common stock for$16 per share.

2. Repurchased 500 shares of its own common stock for $18 per share.

3. Resold 120 shares of treasury stock for$20 per share.

Required

Prepare journal entries for these transactions and post them to T-accounts.

On January 1, 2016, Valley Enterprises issued bonds with a face value of $60,000, a stated rate of interest of 8 percent, and a five-year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 9 percent at the time the bonds were issued. The bonds sold for$57,666. Valley used the effective interest rate method to amortize the bond discount.

$$\begin{array}{lrrrrrrrrrr} && \textbf{Cash} & \textbf{Interest} & \textbf{Discount} & \textbf{Carrying}\\ && \textbf{Payment} & \textbf{Expense} & \textbf{Amortization} & \textbf{Value}\\ \\ \text{January 1, 2016} &&&&& \$57,666\\ \text{December 31, 2016} && \text{4,800} & \text{5,190} & \text{390} & \text{58,056}\\ \text{December 31, 2017} && \text{?} & \text{?} & \text{?} & \text{?}\\ \text{December 31, 2018} && \text{?} & \text{?} & \text{?} & \text{?}\\ \text{December 31, 2019} && \text{?} & \text{?} & \text{?} & \text{?}\\ \text{December 31, 2020} && \text{?} & \text{?} & \text{?} & \text{?}\\ \hline \text{Totals} && \underline{\text{24,000}} & \underline{\text{26,334}} & \underline{\text{2,334}}\\ \end{array}$$

Required

What item(s) in the table would appear on the 2017 statement of cash flows?

The following information pertains to JAE Corp. at January 1, 2016:

$$\begin{array}{lr} \text{Common stock, \$10 par, 20,000 shares authorized,}\\ \text{\hspace{10pt}2,000 shares issued and outstanding} & \$20,000\\ \text{Paid-in capital in excess of par, common stock} & \text{15,000}\\ \text{Retained earnings} & \text{82,000}\\ \end{array}$$

JAE Corp. completed the following transactions during 2016:

1. Issued 3,000 shares of $10 par common stock for$25 per share.

2. Repurchased 500 shares of its own common stock for $26 per share.

3. Resold 200 shares of treasury stock for$30 per share.

Required

How many shares of common stock had been issued at the end of the period?

Target's annual report provides some details about the company's executive officers. How many are identified? What is their minimum, maximum, and average age? How many are females?

The bank statement of Hibbert Supplies included a $300 NSF check that one of Hibbert's customers had written to pay for services that were provided by Hibbert.

Required

Is the recognition of the NSF check on Hibbert's books an asset source, use, or exchange transaction?

All business decisions involve aspects of risk and return. Rank order the following investment activities from 1 through 4, where "1" is most risky and "4" is least risky.

a. Lowest-risk corporate bond
b. Medium-risk corporate bond
c. Company stock in a start-up
d. U.S. government Treasury bond 

___ b. Medium-risk corporate bond

The following transactions apply to Jova Company for 2016, the first year of operation:

1. Issued $10,000 of common stock for cash.

2. Recognized$210,000 of service revenue earned on account.

3. Collected $162,000 from accounts receivable.

4. Paid$125,000 cash for operating expenses.

5. Adjusted the accounts to recognize uncollectible accounts expense. Jova uses the allowance method of accounting for uncollectible accounts and estimates that uncollectible accounts expense will be 1 percent of sales on account.

The following transactions apply to Jova for 2017:

1. Recognized $320,000 of service revenue on account.

2. Collected$335,000 from accounts receivable.

3. Determined that $2,150 of the accounts receivable were uncollectible and wrote them off.

4. Collected$800 of an account that had previously been written off.

5. Paid $205,000 cash for operating expenses.

6. Adjusted the accounts to recognize uncollectible accounts expense for 2017. Jova estimates uncollectible accounts expense will be 0.5 percent of sales on account.

Required

Prepare the income statement, statement of changes in stockholders' equity, balance sheet, and statement of cash flows.

On January 1, 2016, Omega Company issued bonds with a face value of $200,000, a stated rate of interest of 6 percent, and a 10-year term to maturity. Interest is payable in cash on December 31 of each year. The effective rate of interest was 5 percent at the time the bonds were issued. The bonds sold for$215,443. Omega used the effective interest rate method to amortize the bond discount.

Required

Provide the general journal entry necessary to record the December 31, 2016, interest expense.

All business decisions involve aspects of risk and return. Rank order the following investment activities from 1 through 4, where "1" is most risky and "4" is least risky.

a. Lowest-risk corporate bond
b. Medium-risk corporate bond
c. Company stock in a start-up
d. U.S. government Treasury bond 

___ c. Company stock in a start-up