Accounting II

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© 1989 John Petroff

STOCK INVESTMENTS INFORMATION THAT CAN BE FOUND IN THE FINANCIAL PAGES OF A NEWSPAPER ON STOCK

1) The high and low price for the past year.
2) The volume of sales for the day.
3) The low, high, and closing price for the day.
4) The current annual dividend and dividend yield.
5) The price-earnings ratio. Stocks of companies which are
unprofitable will not have P-E ratios.

SELLING LONG-TERM STOCK INVESTMENTS GAINS FROM THE SALE OF LONG-TERM INVESTMENTS IN STOCK
Example: A corporation purchases $50,000 of XYZ company stock, and sells it for $65,000 five years later. The brokerage fee is equal to $750, and another $250 is used for administrative expenses. What entry is necessary to record this transaction?
Entry: debit - Cash 64,000
credit - Investment in XYZ Company Stock 50,000
- Gain on Sale of Investments 14,000

SELLING LONG-TERM STOCK INVESTMENTS LOSSES FROM THE SALE OF LONG-TERM INVESTMENTS IN STOCK
Example: A corporation purchases $50,000 of XYZ company common stock, and sells it for $35,000 five years later. A brokerage fee of $500 is incurred as a result. What entry is necessary to record this transaction?
Entry: debit - Cash 34,500
- Loss on Sale of Investment 15,500
credit - Investment in XYZ Company Stock 50,000

BUSINESS COMBINATIONS MERGERS
When one company purchases all the properties of another company, and as a result the latter ceases to exist; a merger has taken place. The acquiring company takes over all assets and all liabilities. The acquiring company can make payment in the form of cash, assets, debt obligations, or capital stock. Mergers can produce legal, accounting, managerial, and financial problems. The most difficult task is deciding upon the correct value of the assets of the company being taken over. Besides the value of assets, the market price of both companies securities and their future earnings prospects must be taken into consideration.

CONSOLIDATED FINANCIAL STATEMENTS EXAMPLES OF INTERCOMPANY ITEMS THAT MUST BE ELIMINATED BEFORE A CONSOLIDATED FINANCIAL STATEMENT IS PREPARED
1) accounts payable and accounts receivable
2) notes payable and notes receivable
3) interest payable and interest receivable
4) sales and purchases
5) loans between companies
6) ownership of each other's stock

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