INTRODUCTION TO ACCOUNTING 2 MID TERM EXAMINATION 2007/2008
PROBLEM 1
EZ Equipment Co. sold $870,000 of equipment during March under a one-year warranty. The cost to
repair defects under the warranty in estimated at 4.5% of the sales price. On October 4, a costumer
required a $420 part replacement, plus $100 of labor under the warranty.
Provide the journal entry for
a. The estimated warranty expense on March 31
b. The October 4 warranty work
PROBLEM 2
A business issued a 90-day note for $80,000 to a creditor on account. The note was discounted at
8%. Journalize the entries to record
a. The issuance of the note
b. The payment of the note at maturity
PROBLEM 3
Nanotech Innovations Co. sells orthopedic supplies to hospitals. Journalize the entries to record the
following selected transaction of Nanotech Innovations Co.:
a. Purchase for cash $600,000 of Sanhueza Co. 7% bonds at 102 plus accrued interest of
$10,500
b. Received first semiannual interest
c. At the end of the first year, amortized $960 of the bond premium
d. Sold the bonds at 98 plus accrued interest of $3,500. The bonds were carried at $606,720 at
the time of the sale
PROBLEM 4
Kornet Co. produces and sells graphite for golf clubs. The following transactions were completed by
Kornet Co., whose fiscal year is the calendar year.
2007
July
1.
2007
July
Dec
1
31
31
31
2008
Issued $19,000,000 of 7-year, 12% callable bonds dated July 1, 2007, at an
effective rate of 10%, receiving cash of $20,880,780. Interest is payable semiannually on Dec 31 and June 30
Paid the semiannual interest on the bonds
Recorded bond premium amortization of $134,341, which was determined
by using the straight line method
Closed the interest expense account
June
Dec
Dec
30
31
31
31
2009
July
1
Paid the semiannual interest on the bonds
Paid the semiannual interest on the bonds
Recorded bond premium amortization of $268,682, which was determined
by using the straight line method
Closed the interest expense account
Recorded the redemption 50% of the bonds, which were called at 101.5. the
total balance in the bond premium account is $1,343,416 after the payment
of interest and amortization of premium have been recorded. (Record the
redemption only)
Instruction:
1. Journalize the entries to record the foregoing transaction
2. Indicate the amount of the interest expense in (a) 2007 (b)2008
3. Determine the carrying amount of the bonds as of December 31, 2008
PROBLEM 5
Eureka Enterprises Inc. manufactures bathroom fixtures. The stockholders’ equity accounts of
Eureka Enterprises Inc., with balances on January 1, 2008 are as follows:
Common stock, $10 stated value (500,000 shares authorized, 380,000 shares
issued)
Paid-in capital excess of stated value
Retained earnings
Treasury stock (25,000 shares at cost)
$3,800,000
$760,000
$4,390,000
$500,000
The following selected transactions occured during the year:
Jan 10
Mar 3
May 21
July 1
Aug 15
Sep 30
Dec 27
Dec 31
Paid cash dividends of $0.20 per share on the common stock. The dividend had
been properly recorded when declared on December 30 of the preceding fiscal year
for $71,000
Issued 20,000 shares of common stock for $460,000
Sold all of the treasury stock for $660,000
Declared a 3% stock dividend on common stock, to be capitalized at the market
price of the stock, which is $30 per share
Issued the ceriticates for the dividends declared on July 1
Purchase 10,000 shares of treasury stock for $220,000
Declared a $0.25 pershare dividend on common stock
Closed the credit balance of the Income Summary account, $639,500
Closed the two dividends accounts to retained Eranings
Instruction:
a. Journalize the entry to record the transactions
b. Prepare the stockholders’ equity section of the Dec 31, 2008; balance sheet