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SCHAUMS OUTLINE OFTHEORY AND PROBLEMSOFINTERMEDIATEACCOUNTING IISecond EditionBARUCH ENGLARD, M.S., M.B.A., CPAAssociate Professor of AccountingThe College of Staten IslandThe City University of New York

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  • 1. SCHAUMS OUTLINE OF THEORY AND PROBLEMSOF INTERMEDIATE ACCOUNTING IISecond EditionBARUCH ENGLARD, M.S., M.B.A., CPAAssociate Professor of AccountingThe College of Staten IslandThe City University of New York SCHAUMS OUTLINE SERIESNew York Chicago San Francisco Lisbon London Madrid Mexico City Milan New Delhi San Juan SeoulSingapore Sydney Toronto

2. Copyright 2007, 1992 by The McGraw-Hill Companies, Inc. All rights reserved. Manufactured in the United States of America. Exceptas permitted under the United States Copyright Act of 1976, no part of this publication may be reproduced or distributed in any form or byany means, or stored in a database or retrieval system, without the prior written permission of the publisher.0-07-151048-6The material in this eBook also appears in the print version of this title: 0-07-146974-5.All trademarks are trademarks of their respective owners. Rather than put a trademark symbol after every occurrence of a trademarkedname, we use names in an editorial fashion only, and to the benefit of the trademark owner, with no intention of infringement of the trade-mark. Where such designations appear in this book, they have been printed with initial caps.McGraw-Hill eBooks are available at special quantity discounts to use as premiums and sales promotions, or for use in corporate trainingprograms. For more information, please contact George Hoare, Special Sales, at george_hoare@mcgraw-hill.com or (212) 904-4069.TERMS OF USEThis is a copyrighted work and The McGraw-Hill Companies, Inc. (McGraw-Hill) and its licensors reserve all rights in and to the work.Use of this work is subject to these terms. Except as permitted under the Copyright Act of 1976 and the right to store and retrieve one copyof the work, you may not decompile, disassemble, reverse engineer, reproduce, modify, create derivative works based upon, transmit, dis-tribute, disseminate, sell, publish or sublicense the work or any part of it without McGraw-Hills prior consent. You may use the work foryour own noncommercial and personal use; any other use of the work is strictly prohibited. Your right to use the work may be terminatedif you fail to comply with these terms.THE WORK IS PROVIDED AS IS. McGRAW-HILL AND ITS LICENSORS MAKE NO GUARANTEES OR WARRANTIES AS TOTHE ACCURACY, ADEQUACY OR COMPLETENESS OF OR RESULTS TO BE OBTAINED FROM USING THE WORK, INCLUD-ING ANY INFORMATION THAT CAN BE ACCESSED THROUGH THE WORK VIA HYPERLINK OR OTHERWISE, ANDEXPRESSLY DISCLAIM ANY WARRANTY, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO IMPLIED WAR-RANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. McGraw-Hill and its licensors do not warrant orguarantee that the functions contained in the work will meet your requirements or that its operation will be uninterrupted or error free.Neither McGraw-Hill nor its licensors shall be liable to you or anyone else for any inaccuracy, error or omission, regardless of cause, inthe work or for any damages resulting therefrom. McGraw-Hill has no responsibility for the content of any information accessed throughthe work. Under no circumstances shall McGraw-Hill and/or its licensors be liable for any indirect, incidental, special, punitive, consequen-tial or similar damages that result from the use of or inability to use the work, even if any of them has been advised of the possibility ofsuch damages. This limitation of liability shall apply to any claim or cause whatsoever whether such claim or cause arises in contract, tortor otherwise.DOI: 10.1036/0071469745 3. ProfessionalWant to learn more?We hope you enjoy thisMcGraw-Hill eBook! Ifyoud like more information about this book,its author, or related books and websites,please click here. 4. To Moshe, Rochel and Naomi. . .with Loveiii 5. Preface to the Teacher and Student This book may be used as a complete stand-alone text for the classroom, or as a supplement to a standardintermediate accounting textbook. I have written it with two goals in mind: to provide complete coverage ofthe material and to present it in a clear and easy-to-read manner. The book contains broad and in-depth coverage of the Intermediate Accounting II topics. It covers theoryand practice and is helpful as a study aid for the CPA examination. The latest pronouncements of the FASBhave been woven into the text. Each chapter thoroughly discusses the topic at hand and then concludes with a summary. This is followedby a series of rapid-review questions that require ll-in type answers. At this point the student should have a good, overall understanding of the material presented. What thenfollows is a series of solved problems that thoroughly challenge the students grasp of the material. The studentis encouraged to solve these without looking at the answers. The problems are presented in the same order asthe chapter material and are keyed to the chapter sections. Finally, the chapter concludes with approximately ten supplemental problems without answers for addi-tional practice. These may be selected by the teacher as assignment material to done at home or inclass. The author wishes to thank Kim Eaton and Chuck Wall of McGraw-Hill for their help in managing thebook through the editing and production phases. Baruch EnglardBrooklyn, NYApril 2007 ivCopyright 2007, 1992 by The McGraw-Hill Companies, Inc. Click here for terms of use. 6. For more information about this title, click hereContentsCHAPTER 1 LONG-TERM LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.1Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.2Bonds PayableDenitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.3Issuance of BondsPar and Discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11.4Issuance of Bonds at a Premium . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31.5Semiannual and Quarterly Interest Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41.6 Accruals of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51.7Bonds Issued between Interest Dates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51.8The Price of a Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71.9Bond Issue Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .71.10 Early Retirement of Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 81.11 The Effective Interest Method of Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . 91.12 Long-term Notes Issued for Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .101.13 Long-term Notes Issued for Goods or Services . . . . . . . . . . . . . . . . . . . . . . . . . . . 111.14 Long-term Notes Issued for Cash and Special Privileges . . . . . . . . . . . . . . . . . . 121.15 Off-Balance-Sheet Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Rapid Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14Solved Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Supplementary Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22CHAPTER 2 STOCK OWNERSHIP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242.1Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 242.2Stock Issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .242.3Stock Subscriptions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .262.4Lump-Sum Sales of Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .262.5Stock Issuances in Noncash Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .272.6Stock Issuance Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 272.7Treasury StockCost Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282.8Treasury StockPar Value Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .302.9 Assessments on Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .322.10 Features of Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34Rapid Review . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35Solved Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36Supplementary Problems . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44CHAPTER 3 STOCKHOLDERS EQUITY: RETAINED EARNINGS . . . . . . . . . . . . . . . . . . . . . . 453.1 Denition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 453.2 Cash Dividends . . . . . . . . . . .