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Accounting II
Test #2
QUESTION #1
On January 1, 2008, Kohl Corporation issued $700,000, 8%, 10-year bonds at face value. Interest is payable semiannually on July 1 and January 1. Kohl Corporation has a calendar year end.
Instructions
Prepare all entries related to the bond issue for 2008.
QUESTION #2
Presented below are three independent situations:
(a) Howell Corporation purchased $250,000 of its bonds on June 30, 2008, at 102 and immediately retired them. The carrying value of the bonds on the retirement date was $229,500. The bonds pay semiannual interest and the interest payment due on June 30, 2008, has been made and recorded.
(b) Justice, Inc. purchased $200,000 of its bonds at 97 on June 30, 2008, and immediately retired them. The carrying value of the bonds on the retirement date was $196,500. The bonds pay semiannual interest and the interest payment due on June 30, 2008, has been made and recorded.
(c) Starr Company has $80,000, 10%, 12-year convertible bonds outstanding. These bonds were sold at face value and pay semiannual interest on June 30 and December 31 of each year. The bonds are convertible into 40 shares of Starr $5 par value common stock for each $1,000 par value bond. On December 31, 2008, after the bond interest has been paid, $30,000 par value of bonds were converted. The market value of Starr’s common stock was $38 per share on December 31, 2008.
Instructions
For each of the independent situations, prepare the journal entry to record the retirement or conversion of the bonds.
QUESTION #3
Unruh Company issued $900,000, 10%, 20-year bonds on January 1, 2008, at 104. Interest is payable semiannually on July 1 and January 1. Unruh uses the straight-line method of amortization and has a calendar year end.
Instructions
Prepare the January 1, 2008 and the July 1, 2008 journal entries related to the bond issue.
QUESTION #4
Karly Company issued $250,000, 11%, 10-year bonds on December 31, 2008, for $230,000. Interest is payable semiannually on June 30 and December 31. Karly uses the straight-line method of amortization and has a calendar year end.
Instructions
Prepare the appropriate journal entries on
(a) December 31, 2008.
(b) June 30, 2009.
QUESTION #5
The adjusted trial balance for Payne Corporation at the end of the current year contained the following accounts:
Bonds payable, 10%…………………………………………………….. $800,000
Bond interest payable…………………………………………………… 20,000
Discount on bonds payable……………………………………………. 40,000
Lease liability………………………………………………………………. 60,000
Mortgage notes payable, 9%, due 2018…………………………… 80,000
Accounts payable…………………………………………………………. 120,000
Instructions
(a) Prepare the long-term liabilities section of the balance sheet.
(b) Indicate the proper balance sheet classification for the accounts listed above that do not belong in the long-term liabilities section.
QUESTION #6
Glaser Company had the following transactions pertaining to debt securities held as a short-term investment.
Jan. 1 Purchased 40, 8%, $1,000 Cotter Company bonds for $40,000 cash plus brokerage fees of $800. Interest is payable semiannually on July 1 and January 1.
July 1 Received semiannual interest on Cotter Company bonds.
Oct. 1 Sold 30 Cotter Company bonds for $32,000 plus accrued interest less $500 brokerage fees.
Instructions
(a)
Journalize the transactions.
(b) Prepare the adjusting entry for the accrual of interest on December 31.
QUESTION #7
The following transactions were made by Waite Company. Assume all investments are short-term and are readily marketable.
June 2 Purchased 300 shares of Beaty Corporation common stock for $45 per share.
July 1 Purchased 200 Meng Corporation bonds for $220,000.
30 Received a cash dividend of $2 per share from Beaty Corporation.
Sept. 15 Sold 90 shares of Beaty Corporation stock for $50 per share.
Dec. 31 Received semiannual interest check for $11,000 from Meng Corporation.
31 Received a cash dividend of $2 per share from Beaty Corporation.
InstructionsJournalize the transactions.
QUESTION #8
Stine Corporation’s balance sheet at December 31, 2007, showed the following:
Short-term investments, at fair value $46,500
Stine Corporation’s trading portfolio of stock investments consisted of the following at December 31, 2007:
Stock Number of Shares Cost
Dooley Common Stock 200 $30,000
Adler Preferred Stock 400 6,000
Griggs Common Stock 300 9,000
$45,000
During 2008, the following transactions took place:
Feb. 5 Sold 50 shares of Dooley common stock for $8,000.
Mar. 30 Purchased 25 shares of Griggs common stock for $950.
Sept. 9 Purchased 50 shares of Griggs common stock for $2,000.
At year end on December 31, 2008, the market values per share were:
Market Value Per Share
Dooley Common Stock $158.00
Adler Preferred Stock $14.00
Griggs Common Stock $25.00
Instructions
(a) Prepare the journal entries to record the 2008 stock transactions.
(b) On December 31, 2008, prepare any adjusting entry that might be necessary relative to the trading portfolio.
(c) Show how the stock investments will appear on Stine Corporation’s balance sheet at December 31, 2008.
QUESTION #9
Seely Company purchased 42,000 shares of common stock of Otto Corporation as a long-term investment for $1,000,000. During the year, Otto Corporation reported net income of $300,000 and paid dividends of $100,000.
Instructions
(a) Assuming that the 42,000 shares represent a 15% interest in Otto Corporation:
1. Prepare the journal entry to record the investment in Otto stock.
2. Prepare any entries that Seely Company should make in accounting for its investment in Otto stock during the year.
3. What is the balance of the Stock Investments account on Seely Company’s books at the end of the year?
(b) Repeat requirement (a) above except assume that the 42,000 shares represent a 25% interest in Otto Corporation.
QUESTION #10
Rison Corporation has the following trading portfolio of stock investments as of December 31, 2008.
Security Cost Fair Value
A $19,000 $16,000
B 22,000 26,000
C 34,000 31,000
$75,000 $73,000
On January 22, 2009, Rison Corporation sold security C for $30,000.
Instructions
(a) Prepare the adjusting entry for Rison Corporation on December 31, 2008, to report the portfolio at fair value.
(b) Indicate the balance sheet and income statement presentation of the fair value data for Rison Corporation at December 31, 2008.
(c) Prepare the journal entry for the 2009 sale.
QUESTION #11
Selected transactions of Eller Company are listed below.
1. Common stock is sold for cash above par value.
2. Bonds payable are issued for cash at a discount.
3. Interest receivable on a short-term note receivable is collected.
4. Land is sold for cash at book value.
5. Accounts payable are paid in cash.
6. Equipment is purchased by signing a 3-year, 10% note payable.
7. Cash dividends on common stock are declared and paid.
8. 100 shares of XYZ common stock are purchased for cash.
9. Merchandise is sold to customers for cash.
10. Bonds payable are converted into common stock.
Instructions
Classify each transaction as either (a) an operating activity, (b) an investing activity, (c) a financing activity, or (d) a noncash investing and financing activity.
QUESTION #12
A comparative balance sheet for Lyon Company appears below:
LYON COMPANY
Comparative Balance Sheet
Dec. 31, 2008 Dec. 31, 2007
Assets
Cash $ 23,000 $10,000
Accounts receivable 18,000 14,000
Inventory 27,000 18,000
Prepaid expenses 6,000 9,000
Long-term investments -0- 18,000
Equipment 60,000 32,000
Accumulated depreciation—equipment (18,000) (14,000)
Total assets $116,000 $87,000
Liabilities and Stockholders’ Equity
Accounts payable $ 17,000 $ 7,000
Bonds payable 37,000 47,000
Common stock 40,000 23,000
Retained earnings 22,000 10,000
Total liabilities and stockholders’ equity $116,000 $87,000
Additional information:
1. Net income for the year ending December 31, 2008 was $24,000.
2. Cash dividends of $12,000 were declared and paid during the year.
3. Long-term investments that had a cost of $18,000 were sold for $16,000.
4. Sales for 2008 were $120,000.
Instructions
Prepare a statement of cash flows for the year ended December 31, 2008, using the indirect method.
