Question 1
Your answer is correct.
Buttercup Corporation issued 250 shares of $11 par value common stock for $4,125. Prepare
Buttercup' journal entry. (List multiple debit/credit entries from largest to smallest amount, e.g.
10, 5, 2.)
Question 2
Your answer is correct.
Wilco Corporation has the following account balances at December 31, 2012.
Common stock, $5 par value
Treasury stock
Retained earnings
Paid-in capital in excess of par
$511,670
95,260
2,400,840
1,320,150
Prepare Wilco's December 31, 2012, stockholders' equity section.
Question 3
Your answer is correct.
Woolford Inc. declared a cash dividend of $1.38 per share on its 2.22 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
Your answer is correct.
(Preferred Dividends)
The outstanding capital stock of Pennington Corporation consists of 3,100 shares of $109 par
value, 6% preferred, and 5,700 shares of $52 par value common.
Assuming that the company has retained earnings of $83,000, 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.
(a) The preferred stock is noncumulative and nonparticipating.
Preferred
Common
20,274
62,726
60,822
22,178
$
$
(b) The preferred stock is cumulative and nonparticipating.
Preferred
Common
$
$
The
preferred
stock
is
cumulative
and participating. (Round rate of participation to 4
(c)
decimal places, e.g. 5.1234. Round final answer to 0 decimal places, e.g. 25,320.)
Preferred
Common
$
63,163
$
19,837
Question 5
Your answer is correct.
(Preferred Dividends)
Martinez Company's ledger shows the following balances on December 31, 2012.
5% Preferred stock-$10 par value, outstanding
$224,800
22,480 shares
Common stock-$100 par value, outstanding
3,372,000
33,720 shares
Retained earnings
708,120
Assuming that the directors decide to declare total dividends in the amount of $298,984,
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.
Preferred
Common
29,224
269,760
11,240
287,744
$
$
(b) The preferred stock is noncumulative and nonparticipating.
Preferred
Common
$
$
(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.)
Preferred
Common
$
14,472
$
284,513
Question 6
Your answer is correct.
On January 1, 2012, Barwood Corporation granted 5,040 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 $154,000. 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.)
Question 7
Your answer is correct.
Rockland Corporation earned net income of $340,800 in 2012 and had 100,000 shares of
common stock outstanding throughout the year. Also outstanding all year was $908,800 of 10%
bonds, which are convertible into 18,176 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.)
$
3.35
Question 8
Your answer is correct.
DiCenta Corporation reported net income of $250,000 in 2012 and had 50,000 shares of common
stock outstanding throughout the year. Also outstanding all year were 5,410 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.)
$
4.11
Question 9
Your answer is correct.
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 $24 on 5,050 SARs. The required service
period is 2 years. The fair value of the SAR's are determined to be $6 on December 31, 2012,
and $13 on December 31, 2013.
Compute Perkins' compensation expense for 2012.
$
15150
Compute Perkins' compensation expense for 2013.
$
50500
Question 10
Your answer is correct.
Hillsborough Co. has an available-for-sale investment in the bonds of Schuyler with a carrying
(and fair) value of $88,020. Hillsborough determined that due to poor economic prospects for
Schuyler, the bonds have decreased in value to $57,020. It is determined that this loss in value is
other-than temporary. Prepare the journal entry, if any, to record the reduction in value.
Question 11
Your answer is correct.
(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.
1. On January 15, purchased 11,700 shares of Gonzalez Company's common stock at
$43.55 per share plus commission $2,574.
2. On April 1, purchased 6,500 shares of Belmont Co.'s common stock at $67.60 per share
plus commission $4,381.
3. On September 10, purchased 9,100 shares of Thep Co.'s preferred stock at $34.45 per
share plus commission $6,383.
On May 20, 2012, Capriati sold 3,900 shares of Gonzalez Company's common stock at a market
price of $45.50 per share less brokerage commissions, taxes, and fees of $3,705. The year-end
fair values per share were: Gonzalez $39.00, Belmont $71.50, and Thep $36.40. 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.
Question 12
Your answer is correct.
(Journal Entries for Fair Value and Equity Methods)
Presented below are two independent situations.
Prepare all necessary journal entries in 2012 for each situation.
Situation 1
Hatcher Cosmetics acquired 10% of the 207,400 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
$80,200 cash dividend. On December 31, Ramirez reported net income of $123,500 for the year.
At December 31, the market price of Ramirez Fashion was $18 per share. The securities are
classified as available-for-sale.
Situation 2
Holmes, Inc. obtained significant influence over Nadal Corporation by buying 25% of Nadal's 30,800
outstanding shares of common stock at a total cost of $9 per share on January 1, 2012. On June 15,
Nadal declared and paid a cash dividend of $43,800. On December 31, Nadal reported a net income of
$90,500 for the year.
Question 13
Your answer is correct.
(Equity Method)
Gator Co. invested $1,380,000 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.
1,380,000
160,000
64,000
(a) How much was Gator Co.'s share of Demo Co.'s net income for the year?
160000
$
(b) How much was Gator Co.'s share of Demo Co.'s dividends for the year?
64000
$
(c) What was Demo Co.'s total net income for the year?
640000
$
(d) What was Demo Co.'s total dividends for the year?
$
256000
Question 14
Your answer is correct.
(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 $1,320,000 for 50,000 shares. Handerson Inc. declared and
paid an $0.87 per share cash dividend on June 30 and on December 31, 2013. Handerson
reported net income of $741,000 for 2013. The fair value of Handerson's stock was $32 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
Your answer is correct.
(Call Option)
On January 2, 2012, Jones Company purchases a call option for $450 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 $60 per share,
and the time value of the option is $200.
(a) Prepare the journal entry to record the purchase of the call option on January 2, 2012.
(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: $
9750
Question 16
Your answer is correct.
In 2012, Amirante Corporation had pretax financial income of $207,000 and taxable income of
$166,400. 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.
$
66560
Question 17
Your answer is correct.
At December 31, 2012, Fell Corporation had a deferred tax liability of $732,802, resulting from
future taxable amounts of $2,155,300 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 42% for 2013 and future years.
Prepare the journal entry for Fell to adjust the deferred tax liability.
Question 18
Your answer is correct.
AMR Corporation (parent company of American Airlines) reported the following for 2009 (in
millions).
Service cost
Interest cost on P.B.O
Return on plan assets
Amortization of service cost
Amortization of loss
$405
736
825
29
66
Compute AMR Corporation's 2009 pension expense (in millions).
$
411
million
Question 19
Your answer is correct.
For Warren Corporation, year-end plan assets were $2,094,700. At the beginning of the year,
plan assets were $1,762,400. 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.
$
412300
Question 20
Your answer is correct.
For 2010, Campbell Soup Company had pension expense of $48 million and contributed $296
million to the pension fund. Prepare Campbell Soup Company's journal entry to record pension
expense and funding.
Question 21
Your answer is correct.
Lahey Corp. has three defined-benefit pension plans as follows.
Pension Assets
Projected Benefit
(at Fair Value)
Obligation
Plan X
$637,500
$504,000
Plan Y
902,200
739,900
Plan Z
584,600
713,200
How will Lahey report these multiple plans in its financial statements?
Question 22
Your answer is correct.
For 2012, Sampsell Inc. computed its annual postretirement expense as $278,680. Sampsell's
contribution to the plan during 2012 was $185,750. Prepare Sampsell's 2012 entry to record
postretirement expense. (List multiple debit/credit entries from largest to smallest amount, e.g.
10, 5, 2.)
Question 23
Your answer is correct.
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 $143,000, and
completed-contract $65,800. The tax rate is 32%. 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.)
Question 24
Your answer is correct.
In 2012, Bailey Corporation discovered that equipment purchased on January 1, 2010, for
$50,000 was expensed at that time. The equipment should have been depreciated over 5 years,
with no salvage value. The effective tax rate is 29%. 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.)
Question 25
Your answer is correct.
At January 1, 2012, Beilder Company reported retained earnings of $2,027,300. In 2012, Beilder
discovered that 2011 depreciation expense was understated by $442,300. In 2012, net income
was $931,270 and dividends declared were $204,310. The tax rate is 38%. Complete the 2012
retained earnings statement for Beilder Company. (List amounts from largest to smallest eg 10,
5, 3, 2.)
Question 26
Your answer is correct.
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
$81,100 and paid dividends of $90,400. 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.)
Question 27
Your answer is correct.
Manno Corporation has the following information available concerning its postretirement benefit
plan for 2012.
Service cost
Interest cost
Actual return on plan
assets
$53,750
58,360
40,190
Compute Manno's 2012 postretirement expense.
$
71920
Question 28
Your answer is correct.
Ravonette Corporation issued 310 shares of $13 par value common stock and 130 shares of $47
par value preferred stock for a lump sum of $17,500. The common stock has a market price of
$22 per share, and the preferred stock has a market price of $98 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.)
Question 29
Your answer is correct.
Garfield Company purchased, as a held-to-maturity investment, $82,400 of the 9%, 8-year bonds
of Chester Corporation for $73,919, 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.)
Question 30
Your answer is correct.
Clydesdale Corporation has a cumulative temporary difference related to depreciation of
$606,600 at December 31, 2012. This difference will reverse as follows: 2013, $43,100; 2014,
$264,300; and 2015, $299,200. 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.
$
224196