ACC423 Final Exam
Buttercup Corporation issued 310 shares of $13 par value common stock for $6,045. Prepare Buttercup’ journal entry. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)
Wilco Corporation has the following account balances at December 31, 2012.
Common stock, $5 par value $547,790
Treasury stock 92,420
Retained earnings 2,358,180
Paid-in capital in excess of par 1,330,540
Prepare Wilco’s December 31, 2012, stockholders’ equity section.
Woolford Inc. declared a cash dividend of $1.44 per share on its 2.31 million outstanding shares. The dividend was declared on August 1, payable on September 9 to all stockholders of record on August 15. Prepare the journal entries necessary on those three dates. (If no entry is required, enter No Entry as the Description and 0 as the amount.)
Question 4(preferred dividend)
The outstanding stock of Pennington corporation consists of 2,100 shares of $107 par value, 6% preferred, and 5,400 shares of $55 par value common.
Assuming that the company has retained earnings of $87,000 all of which is to be paid out in dividends, and that preferred dividends were not paid during the 2 years preceding the current year, state how much each class of stock should receive under each of the following conditions.
The preferred stock is noncumulative and noparticipating/
The preferred stock is cumulative and nonparticipating
(c) The preferred stock is cumulative and participating. (Round rate of participation to 4 decimal places, e.g. 5.1234. Round final answer to 0 decimal places, e.g. 25,320.)
Question 5 (Preferred Dividends)
Martinez Company’s ledger shows the following balances on December 31, 2012.
5% Preferred stock-$10 par value, outstanding 24,860 shares $248,600
Common stock-$100 par value, outstanding 37,290 shares 3,729,000
Retained earnings 783,090
Assuming that the directors decide to declare total dividends in the amount of $330,638, determine how much each class of stock should receive under each of the conditions stated below. One year’s dividends are in arrears on the preferred stock.
(a) The preferred stock is cumulative and fully participating.
(b) The preferred stock is noncumulative and nonparticipating.
(c) The preferred stock is noncumulative and is participating in distributions in excess of a 7% dividend rate on the common stock. (Note: Do not round rate of participation. Round final answers to zero decimal places, e.g. 12,310.)
On January 1, 2012, Barwood Corporation granted 5,450 options to executives. Each option entitles the holder to purchase one share of Barwood’s $5 par value common stock at $50 per share at any time during the next 5 years. The market price of the stock is $72 per share on the date of grant. The fair value of the options at the grant date is $146,100. The period of benefit is 2 years. Prepare Barwood’s journal entries for January 1, 2012, and December 31, 2012 and 2013. (If no entry is required, enter No Entry as the description and 0 as the amount.)
Rockland Corporation earned net income of $375,300 in 2012 and had 100,000 shares of common stock outstanding throughout the year. Also outstanding all year was $1,000,800 of 10% bonds, which are convertible into 20,016 shares of common. Rockland’s tax rate is 40 percent. Compute Rockland’s 2012 diluted earnings per share. (Round answer to 2 decimal places, e.g. 2.13.)
DiCenta Corporation reported net income of $282,000 in 2012 and had 50,000 shares of common stock outstanding throughout the year. Also outstanding all year were 5,710 shares of cumulative preferred stock, each convertible into 2 shares of common. The preferred stock pays an annual dividend of $5 per share. DiCenta’ tax rate is 40%. Compute DiCenta’ 2012 diluted earnings per share. (Round answer to 2 decimal places, e.g. 5.23.)
Ferraro, Inc. established a stock appreciation rights (SAR) program on January 1, 2012, which entitles executives to receive cash at the date of exercise for the difference between the market price of the stock and the pre-established price of $22 on 5,050 SARs. The required service period is 2 years. The fair value of the SAR’s are determined to be $4 on December 31, 2012, and $11 on December 31, 2013.
Compute Perkins’ compensation expense for 2012.
Compute Perkins’ compensation expense for 2013.
Hillsborough Co. has an available-for-sale investment in the bonds of Schuyler with a carrying (and fair) value of $85,460. Hillsborough determined that due to poor economic prospects for Schuyler, the bonds have decreased in value to $58,350. It is determined that this loss in value is other-than temporary. Prepare the journal entry, if any, to record the reduction in value.
(Equity Securities Entries)
Capriati Corporation made the following cash purchases of securities during 2012, which is the first year in which Arantxa invested in securities.
On January 15, purchased 9,900 shares of Gonzalez Company’s common stock at $36.85 per share plus commission $2,178.
On April 1, purchased 5,500 shares of Belmont Co.’s common stock at $57.20 per share plus commission $3,707.
On September 10, purchased 7,700 shares of Thep Co.’s preferred stock at $29.15 per share plus commission $5,401.
On May 20, 2012, Capriati sold 3,300 shares of Gonzalez Company’s common stock at a market price of $38.50 per share less brokerage commissions, taxes, and fees of $3,135. The year-end fair values per share were: Gonzalez $33.00, Belmont $60.50, and Thep $30.80. In addition, the chief accountant of Capriati told you that Capriati Corporation plans to hold these securities for the long term but may sell them in order to earn profits from appreciation in prices.
(a) Prepare the journal entries to record the above three security purchases.
(b) Prepare the journal entry for the security sale on May 20. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)
(c) Compute the unrealized gains or losses and prepare the adjusting entries for Capriati on December 31, 2012.
Unrealized gain or loss (For negative numbers use either a negative sign preceding the number, e.g. -45 or parenthesis, e.g. (45).)
(Journal Entries for Fair Value and Equity Methods)
Presented below are two independent situations.
Prepare all necessary journal entries in 2012 for each situation.
Hatcher Cosmetics acquired 10% of the 201,100 shares of common stock of Ramirez Fashion at a total cost of $15 per share on March 18, 2012. On June 30, Ramirez declared and paid a $84,000 cash dividend. On December 31, Ramirez reported net income of $131,000 for the year. At December 31, the market price of Ramirez Fashion was $17 per share. The securities are classified as available-for-sale.
Holmes, Inc. obtained significant influence over Nadal Corporation by buying 25% of Nadal’s 34,700 outstanding shares of common stock at a total cost of $11 per share on January 1, 2012. On June 15, Nadal declared and paid a cash dividend of $39,000. On December 31, Nadal reported a net income of $89,600 for the year.
Gator Co. invested $1,020,000 in Demo Co. for 25% of its outstanding stock. Demo Co. pays out 40% of net income in dividends each year.
Use the information in the following T-account for the investment in Demo to answer the following questions.
Investment in Demo Co.
(a) How much was Gator Co.’s share of Demo Co.’s net income for the year?
(b) How much was Gator Co.’s share of Demo Co.’s dividends for the year?
(c) What was Demo Co.’s total net income for the year?
(d) What was Demo Co.’s total dividends for the year?
Question 14 (Fair Value and Equity Method Compared)
Gregory Inc. acquired 20% of the outstanding common stock of Handerson Inc. on December 31, 2012. The purchase price was $1,210,000 for 50,000 shares. Handerson Inc. declared and paid an $0.86 per share cash dividend on June 30 and on December 31, 2013. Handerson reported net income of $735,000 for 2013. The fair value of Handerson’s stock was $31 per share at December 31, 2013.
(a) Prepare the journal entries for Gregory Inc. for 2012 and 2013, assuming that Gregory cannot exercise significant influence over Handerson. The securities should be classified as available-for-sale.
(b) Prepare the journal entries for Gregory Inc. for 2012 and 2013, assuming that Gregory can exercise significant influence over Handerson.
(c) At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2013? What is the total net income reported in 2013 under each of these methods? (If answer is zero, please enter a 0 do not leave any fields blank.)
Question 15 (Call Option)
On January 2, 2012, Jones Company purchases a call option for $380 on Merchant common stock. The call option gives Jones the option to buy 1,000 shares of Merchant at a strike price of $50 per share. The market price of a Merchant share is $50 on January 2, 2012 (the intrinsic value is therefore $0). On March 31, 2012, the market price for Merchant stock is $75 per share, and the time value of the option is $200.
(b) Prepare the journal entry(ies) to recognize the change in the fair value of the call option as of March 31, 2012.
(c) What was the effect on net income of entering into the derivative transaction for the period January 2 to March 31, 2012?
Unrealized Holding Gain: $
In 2012, Amirante Corporation had pretax financial income of $169,400 and taxable income of $125,500. The difference is due to the use of different depreciation methods for tax and accounting purposes. The effective tax rate is 40%. Compute the amount to be reported as income taxes payable at December 31, 2012.
At December 31, 2012, Fell Corporation had a deferred tax liability of $726,682, resulting from future taxable amounts of $2,137,300 and an enacted tax rate of 34%. In May 2013, a new income tax act is signed into law that raises the tax rate to 39% for 2013 and future years. Prepare the journal entry for Fell to adjust the deferred tax liability.
AMR Corporation (parent company of American Airlines) reported the following for 2009 (in millions).
Service cost $418
Interest cost on P.B.O 760
Return on plan assets 750
Amortization of service cost 19
Amortization of loss 66
Compute AMR Corporation’s 2009 pension expense (in millions).
For Warren Corporation, year-end plan assets were $2,122,300. At the beginning of the year, plan assets were $1,691,900. During the year, contributions to the pension fund were $120,000, and benefits paid were $200,000. Compute Warren’s actual return on plan assets.
For 2010, Campbell Soup Company had pension expense of $41 million and contributed $297 million to the pension fund. Prepare Campbell Soup Company’s journal entry to record pension expense and funding.
Lahey corp. has three defined-benefit pension plans as follows.
Pension Assets(at Fair Value) obligation
Plan X $639,000 $525,200
Plan Y 934,200 743,700
Plan Z 586,100 736,900
How will Lahey report these multiple plans in its financial statements?
Pension asset $
Pension liability $
For 2012, Sampsell Inc. computed its annual postretirement expense as $242,610. Sampsell’s contrinution to the plan during 2012 was $181,070. Prepare Sampsell’s 2012 entry to record postretirement expense. (List multiple debit/credit entries from largest to smallest amunt, e.g. 10,5,2.)
Wertz Corporation decided at the beginning of 2012 to change from the completed-contract method to the percentage-of-completion method for financial reporting purposes. The company will continue to use completed-contract method for tax purposes. For years prior to 2012, pre-tax income under the two methods was as follows: percentage-of-completion $122,200, and completed-contract $59,100. The tax rate is 33%. Prepare Wertz’s 2012 journal entry to record the change in accounting principle. (For multiple debit/credit entries, list amounts from largest to smallest eg 10, 5, 3, 2.)
In 2012, Bailey Corporation discovered that equipment purchased on January 1, 2010, for $110,000 was expensed at that time. The equipment should have been depreciated over 5 years, with no salvage value. The effective tax rate is 31%. Prepare Hiatt’s 2012 journal entry to correct the error. (For multiple debit/credit entries, list amounts from largest to smallest eg 10, 5, 3, 2.)
At January 1, 2012, Beilder Company reported retained earnings of $2,041,400. In 2012, Beilder discovered that 2011 depreciation expense was understated by $409,200. In 2012, net income was $929,480 and dividends declared were $221,200. The tax rate is 36%. Complete the 2012 retained earnings statement for Beilder Company. (List amounts from largest to smallest eg 10, 5, 3, 2.)
Simmons Corporation owns stock of Armstrong, Inc. Prior to 2012, the investment was accounted for using the equity method. In early 2012, Simmons sold part of its investment in Armstrong, and began using the fair value method. In 2012, Armstrong earned net income of $86,200 and paid dividends of $99,800. Prepare Simmons’s entries related to Armstrong’s net income and dividends, assuming Simmons now owns 11% of Armstrong’s stock. (For multiple debit/credit entries, list amounts from largest to smallest eg 10, 5, 3, 2.)
Manno Corporation has the following information available concerning its postretirement benefit plan for 2012.
Service cost $41,510
Interest cost 46,760
Actual return on plan assets 30,750
Compute Manno’s 2012 postretirement expense.
Ravonette Corporation issued 310 shares of $13 par value common stock and 140 shares of $47 par value preferred stock for a lump sum of $17,600. The common stock has a market price of $23 per share, and the preferred stock has a market price of $97 per share. Prepare the journal entry to record the issuance. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2. Round answers to zero decimal places, e.g. 16,210.)
Garfield Company purchased, as a held-to-maturity investment, $81,000 of the 9%, 12-year bonds of Chester Corporation for $70,482, which provides an 11% return. Prepare Garfield’s journal entries for (a) the purchase of the investment and (b) the receipt of annual interest and discount amortization. Assume effective interest amortization is used. (Round answers to zero decimal places, e.g. 25,000. List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)
Clydesdale Corporation has a cumulative temporary difference related to depreciation of $597,100 at December 31, 2012. This difference will reverse as follows: 2013, $46,300; 2014, $257,900; and 2015, $292,900. Enacted tax rates are 34% for 2013 and 2014, and 40% for 2015. Compute the amount Clydesdale should report as a deferred tax liability at December 31, 2012.
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