The transactions listed below relate to Vikings Inc. You are to
assume that on the date on which each of the transactions occurred,
the corporation’s accounts showed only common stock ($100 par)
outstanding, a current ratio of 2.7:1, and a substantial net income
for the year to date (before giving effect to the transaction
concerned). On that date, the book value per share of stock was
$151.53.
Each numbered transaction below is to be considered completely
independent of the others, and its related answer should be based
on the effect(s) of that transaction alone. Assume that all
numbered transactions occurred during 2018 and that the amount
involved in each case is sufficiently material to distort reported
net income if improperly included in the determination of net
income. Assume further that each transaction was recorded in
accordance with generally accepted accounting principles and, where
applicable, in conformity with the all-inclusive concept of the
income statement. For each of the numbered transactions you are to
decide whether it:
List the numbers 1 through 9. Select as many letters as you deem
appropriate to reflect the effect(s) of each transaction as of the
date of the transaction by printing beside the transaction number
the letter(s) that identifies that transaction’s effect(s).
1) Litigation involving Vikings Inc. as defendant was settled in the corporation’s favor, with the plaintiff paying all court costs and legal fees. In 2015, the corporation had appropriately established a special contingency for this court action. (Indicate the effect of reversing the contingency only.)
Increased the corporation’s 2018 net income. |
Decreased the corporation’s 2018 net income. |
Increased the corporation’s total retained earnings directly (i.e., not via net income). |
Decreased the corporation’s total retained earnings directly. |
Increased the corporation’s current ratio. |
Decreased the corporation’s current ratio. |
Increased each stockholder’s proportionate share of total stockholders’ equity. |
Decreased each stockholder’s proportionate share of total stockholders’ equity. |
Increased each stockholder’s equity per share of stock (book value). |
Decreased each stockholder’s equity per share of stock (book value). |
Had none of the foregoing effects. 2) Treasury stock originally repurchased and carried at $127 per share was sold for cash at $153 per share. |
Increased the corporation’s 2018 net income. |
Decreased the corporation’s 2018 net income. |
Increased the corporation’s total retained earnings directly (i.e., not via net income). |
Decreased the corporation’s total retained earnings directly. |
Increased the corporation’s current ratio. |
Decreased the corporation’s current ratio. |
Increased each stockholder’s proportionate share of total stockholders’ equity. |
Decreased each stockholder’s proportionate share of total stockholders’ equity. |
Increased each stockholder’s equity per share of stock (book value). |
Decreased each stockholder’s equity per share of stock (book value). |
Had none of the foregoing effects. |
3) The corporation received a check for the proceeds of an insurance policy from the company with which it is insured against theft of trucks. No entries concerning the theft had been made previously, and the proceeds reduce but do not cover completely the loss.
Increased the corporation’s 2018 net income. |
Decreased the corporation’s 2018 net income. |
Increased the corporation’s total retained earnings directly (i.e., not via net income). |
Decreased the corporation’s total retained earnings directly. |
Increased the corporation’s current ratio. |
Decreased the corporation’s current ratio. |
Increased each stockholder’s proportionate share of total stockholders’ equity. |
Decreased each stockholder’s proportionate share of total stockholders’ equity. |
Increased each stockholder’s equity per share of stock (book value). |
Decreased each stockholder’s equity per share of stock (book value). |
Had none of the foregoing effects. 4) The corporation wrote off all of the unamortized discount and
issue expense applicable to bonds that it refinanced in
2018.
|
1. .Increased the corporation’s 2018 net income.
Increased the corporation’s current ratio.
Increased each stockholder’s equity per share of stock (book value).
2. Increased the corporation’s current ratio.
Decreased each stockholder’s proportionate share of total stockholders’ equity.
Increased each stockholder’s equity per share of stock (book value).
3. Decreased the corporation’s 2018 net income.
.Increased the corporation’s current ratio.
Decreased each shareholder's equity per share of stock ( book value)
4. Decreased the corporation’s 2018 net income.
Decreased each stockholder’s equity per share of stock (book value).
5. Decreased the corporation’s total retained earnings directly.
Decreased each stockholder’s equity per share of stock (book value).
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