ASAP

Done by tonight or tomorow morning.

.08 mjm

1

. On August 31, Jenks Co. partially refunded $180,000 of its outstanding 10% note payable made one year ago to Arma State Bank by paying $180,000 plus $18,000 interest, having obtained the $198,000 by using $52,400 cash and signing a new one-year $160,000 note discounted at 9% by the bank.

Instructions

(1)
Make the entry to record the partial refunding. Assume Jenks Co. makes reversing entries when appropriate.

(2)
Prepare the adjusting entry at December 31, assuming straight-line amortization of the discount.

2. Below are three independent situations.

1. In August, 2012 a worker was injured in the factory in an accident partially the result of his own negligence. The worker has sued Wesley Co. for $800,000. Counsel believes it is reasonably possible that the outcome of the suit will be unfavorable and that the settlement would cost the company from $250,000 to $500,000.

2. A suit for breach of contract seeking damages of $2,400,000 was filed by an author against Greer Co. on October 4, 2012. Greer’s legal counsel believes that an unfavorable outcome is probable. A reasonable estimate of the award to the plaintiff is between $600,000 and $1,800,000. No amount within this range is a better estimate of potential damages than any other amount.

3. Quinn is involved in a pending court case. Peete’s lawyers believe it is probable that Quinn will be awarded damages of $1,000,000.

Instructions

Discuss the proper accounting treatment, including any required disclosures, for each situation. Give the rationale for your answers.

3. ESSAY QUESTION: What accounting treatment is required for convertible

debt? Why? What accounting treatment is required for debt issued with stock warrants? Why?

4. On July 1, 2012, Spear Co. issued 1,000 of its 10%, $1,000 bonds at 99 plus accrued interest. The bonds are dated April 1, 2012 and mature on April 1, 2022. Interest is payable semiannually on April 1 and October 1. What amount did Spear receive from the bond issuance?

5. Parker Corporation has issued 2,000 shares of common stock and 400 shares of preferred stock for a lump sum of $72,000 cash.

Instructions

(a)
Give the entry for the issuance assuming the par value of the common was $5 and the market value $30, and the par value of the preferred was $40 and the market value $50. (Each valuation is on a per share basis and there are ready markets for each stock.)

(b)
Give the entry for the issuance assuming the same facts as (a) above except the preferred stock has no ready market and the common stock has a market value of $25 per share.

6. Weighted average shares outstanding.

On January 1, 2012, Warren Corporation had 1,000,000 shares of common stock outstanding. On March 1, the corporation issued 150,000 new shares to raise additional capital. On July 1, the corporation declared and issued a 2-for-1 stock split. On October 1, the corporation purchased on the market 600,000 of its own outstanding shares and retired them.

Instructions

Compute the weighted average number of shares to be used in computing earnings per share for 2012.

MULTIPLE CHOICE.

1. Which of the following is generally associated with payables classified as accounts payable?

Periodic Payment
Secured

of Interest

by Collateral

a.
No

No

b.
No

Yes

c.
Yes

No

d.
Yes

Yes

2. On January 1, 2012, Beyer Co. leased a building to Heins Corp. for a ten-year term at an annual rental of $80,000. At inception of the lease, Beyer received $320,000 covering the first two years’ rent of $160,000 and a security deposit of $160,000. This deposit will not be returned to Heins upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the $320,000 should be shown as a current and long-term liability, respectively, in Beyer’s December 31, 2012 balance sheet?

Current Liability
Long-term Liability

a.
$0

$320,000

b.
$80,000
$160,000

c.
$160,000
$160,000

d.
$160,000
$80,000

3. On September 1, 2012, Herman Co. issued a note payable to National Bank in the amount of $1,200,000, bearing interest at 12%, and payable in three equal annual principal payments of $400,000. On this date, the bank’s prime rate was 11%. The first payment for interest and principal was made on September 1, 2013. At December 31, 2013, Herman should record accrued interest payable of

a.
$48,000.

b.
$44,000.

c.
$32,000.

d.
$29,334.

4. Included in Vernon Corp.’s liability account balances at December 31, 2012, were the following:

7% note payable issued October 1, 2012, maturing September 30, 2013: $250,000

8% note payable issued April 1, 2012, payable in six equal annual
installments of $150,000 beginning April 1, 2013: 600,000

Vernon’s December 31, 2012 financial statements were issued on March 31, 2013. On January 15, 2013, the entire $600,000 balance of the 8% note was refinanced by issuance of a long-term obligation payable in a lump sum. In addition, on March 10, 2013, Vernon consummated a noncancelable agreement with the lender to refinance the 7%, $250,000 note on a long-term basis, on readily determinable terms that have not yet been implemented. On the December 31, 2012 balance sheet, the amount of the notes payable that Vernon should classify as short-term obligations is

a.
$175,000.

b.
$125,000.

c.
$50,000.

d.
$0.

5. Edge Company’s salaried employees are paid biweekly. Occasionally, advances made to employees are paid back by payroll deductions. Information relating to salaries for the calendar year 2013 is as follows:

12/31/12
12/31/13

Employee advances
$12,000
$ 18,000

Accrued salaries payable
65,000

?

Salaries expense during the year

650,000

Salaries paid during the year (gross)
625,000

At December 31, 2013, what amount should Edge report for accrued salaries payable?

a.
$90,000.

b.
$84,000.

c.
$72,000.

d.
$25,000.

6. Risen Corp.’s payroll for the pay period ended October 31, 2012 is summarized as follows:

Federal

Amount of Wages Subject

Department
Total Income Tax

to Payroll Taxes

Payroll
Wages
Withheld

F.I.C.A.
Unemployment

Factory
$ 75,000
$ 9,000
$70,000
$22,000

Sales
22,000
3,000
16,000
2,000

Office

18,000
2,000
8,000
—

$115,000
$14,000
$94,000
$24,000

Assume the following payroll tax rates:

F.I.C.A. for employer and employee
7% each

Unemployment

3%

What amount should Risen accrue as its share of payroll taxes in its October 31, 2012 balance sheet?

a.
$21,300.

b.
$14,720.

c.
$13,880.

d.
$7,300.

7. Felton Co. sells major household appliance service contracts for cash. The service contracts are for a one-year, two-year, or three-year period. Cash receipts from contracts are credited to unearned service contract revenues. This account had a balance of $480,000 at December 31, 2011 before year-end adjustment. Service contract costs are charged as incurred to the service contract expense account, which had a balance of $120,000 at December 31, 2011. Outstanding service contracts at December 31, 2011 expire as follows:

During 2012
During 2013
During 2014

$100,000
$160,000
$70,000

What amount should be reported as unearned service contract revenues in Felton’s December 31, 2011 balance sheet?

a.
$360,000.

b.
$330,000.

c.
$240,000.

d.
$220,000.

8. Yount Trading Stamp Co. records stamp service revenue and provides for the cost of redemptions in the year stamps are sold to licensees. Yount’s past experience indicates that only 80% of the stamps sold to licensees will be redeemed. Yount’s liability for stamp redemptions was $7,500,000 at December 31, 2011. Additional information for 20120 is as follows:

Stamp service revenue from stamps sold to licensees
$5,000,000

Cost of redemptions
3,400,000

If all the stamps sold in 2012 were presented for redemption in 2013, the redemption cost would be $2,500,000. What amount should Yount report as a liability for stamp redemptions at December 31, 2012?

a.
$9,100,000.

b.
$6,600,000.

c.
$6,100,000.

d.
$4,100,000.

Use the following information for questions 9 through 11:

On January 1, 2012, Ellison Co. issued eight-year bonds with a face value of $1,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are:

Present value of 1 for 8 periods at 6%
.627

Present value of 1 for 8 periods at 8%
.540

Present value of 1 for 16 periods at 3%
.623

Present value of 1 for 16 periods at 4%
.534

Present value of annuity for 8 periods at 6%
6.210

Present value of annuity for 8 periods at 8%
5.747

Present value of annuity for 16 periods at 3%
12.561

Present value of annuity for 16 periods at 4%
11.652

9. The present value of the principal is

a.
$534,000.

b.
$540,000.

c.
$623,000.

d.
$627,000.

10. The present value of the interest is

a.
$344,820.

b.
$349,560.

c.
$372,600.

d.
$376,830.

11. The issue price of the bonds is

a.
$883,560.

b.
$884,820.

c.
$889,560.

d.
$999,600.

12. The term used for bonds that are unsecured as to principal is

a. junk bonds.

b. debenture bonds.

c. indebenture bonds.

d. callable bonds.

13. Bonds for which the owners’ names are not registered with the issuing corporation are called

a. bearer bonds.

b. term bonds.

c. debenture bonds.

d. secured bonds.

14.
Reich, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. If the bonds were issued at a premium, this indicates that

a.
the effective yield or market rate of interest exceeded the stated (nominal) rate.

b.
the nominal rate of interest exceeded the market rate.

c.
the market and nominal rates coincided.

d.
no necessary relationship exists between the two rates.

15. The interest rate written in the terms of the bond indenture is known as the

a.
coupon rate.

b.
nominal rate.

c.
stated rate.

d.
coupon rate, nominal rate, or stated rate.

16. The rate of interest actually earned by bondholders is called the

a.
stated rate.

b.
yield rate.

c.
effective rate.

d.
effective, yield, or market rate.

17. In a troubled debt restructuring in which the debt is continued with modified terms and the carrying amount of the debt is less than the total future cash flows,

a.
a loss should be recognized by the debtor.

b.
a gain should be recognized by the debtor.

c.
a new effective-interest rate must be computed.

d.
no interest expense or revenue should be recognized in the future.

18. The residual interest in a corporation belongs to the

a.
management.

b.
creditors.

c.
common stockholders.

d.
preferred stockholders.

19.
The pre-emptive right of a common stockholder is the right to

a.
share proportionately in corporate assets upon liquidation.

b.
share proportionately in any new issues of stock of the same class.

c.
receive cash dividends before they are distributed to preferred stockholders.

d.
exclude preferred stockholders from voting rights.

20.
In a corporate form of business organization, legal capital is best defined as

a.
the amount of capital the state of incorporation allows the company to accumulate over its existence.

b.
the par value of all capital stock issued.

c.
the amount of capital the federal government allows a corporation to generate.

d.
the total capital raised by a corporation within the limits set by the Securities and Exchange Commission.

21. The cumulative feature of preferred stock

a.
limits the amount of cumulative dividends to the par value of the preferred stock.

b.
requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.

c.
means that the shareholder can accumulate preferred stock until it is equal to the par value of common stock at which time it can be converted into common stock.

d.
enables a preferred stockholder to accumulate dividends until they equal the par value of the stock and receive the stock in place of the cash dividends.

Presented below is information related to Hale Corporation, question 22 – 23:

Common Stock, $1 par
$4,300,000

Paid-in Capital in Excess of Par—Common Stock
550,000

Preferred 8 1/2% Stock, $50 par
2,000,000

Paid-in Capital in Excess of Par—Preferred Stock
400,000

Retained Earnings
1,500,000

Treasury Common Stock (at cost)
150,000

22.
The total stockholders’ equity of Hale Corporation is

a.
$8,600,000.

b.
$8,750,000.

c.
$7,100,000.

d.
$7,250,000.

23.
The total paid-in capital (cash collected) related to the common stock is

a.
$4,300,000.

b.
$4,850,000.

c.
$5,250,000.

d.
$4,700,000.

24. The payout ratio can be calculated by dividing

a.
dividends per share by earnings per share.

b.
cash dividends by net income less preferred dividends.

c.
cash dividends by market price per share.

d.
dividends per share by earnings per share and dividing cash dividends by net income less preferred dividends.

25. Younger Company has outstanding both common stock and nonparticipating, non-cumulative preferred stock. The liquidation value of the preferred is equal to its par value. The book value per share of the common stock is unaffected by

a.
the declaration of a stock dividend on preferred payable in preferred stock when the market price of the preferred is equal to its par value.

b.
the declaration of a stock dividend on common stock payable in common stock when the market price of the common is equal to its par value.

c.
the payment of a previously declared cash dividend on the common stock.

d.
a 2-for-1 split of the common stock.

26.
Assume common stock is the only class of stock outstanding in the Manley Corporation. Total stockholders’ equity divided by the number of common stock shares outstanding is called

a.
book value per share.

b.
par value per share.

c.
stated value per share.

d.
market value per share.

27. With respect to the computation of earnings per share, which of the following would be most indicative of a simple capital structure?

a.
Common stock, preferred stock, and convertible securities outstanding in lots of even thousands

b.
Earnings derived from one primary line of business

c.
Ownership interest consisting solely of common stock

d.
None of these

28.
In computing earnings per share for a simple capital structure, if the preferred stock is cumulative, the amount that should be deducted as an adjustment to the numerator (earnings) is the

a.
preferred dividends in arrears.

b.
preferred dividends in arrears times (one minus the income tax rate).

c.
annual preferred dividend times (one minus the income tax rate).

d.
none of these.

29.
In computations of weighted average of shares outstanding, when a stock dividend or stock split occurs, the additional shares are

a.
weighted by the number of days outstanding.

b.
weighted by the number of months outstanding.

c.
considered outstanding at the beginning of the year.

d.
considered outstanding at the beginning of the earliest year reported.

30.
What effect will the acquisition of treasury stock have on stockholders’ equity and earnings per share, respectively?

a.
Decrease and no effect

b.
Increase and no effect

c.
Decrease and increase

d.
Increase and decrease

31. Due to the importance of earnings per share information, it is required to be reported by all

Public Companies
Nonpublic Companies

a.
Yes
Yes

b.
Yes
No

c.
No
No

d.
No
Yes

32.
A convertible bond issue should be included in the diluted earnings per share computation as if the bonds had been converted into common stock, if the effect of its inclusion is

Dilutive
Antidilutive

a.
Yes
Yes
b.
Yes
No

c.
No
Yes

d.
No
No

33.
When computing diluted earnings per share, convertible bonds are

a.
ignored.

b.
assumed converted whether they are dilutive or antidilutive.

c.
assumed converted only if they are antidilutive.

d.
assumed converted only if they are dilutive.

34.
Stockholders of a business enterprise are said to be the residual owners. The term residual owner means that shareholders

a.
are entitled to a dividend every year in which the business earns a profit.

b.
have the rights to specific assets of the business.

c.
bear the ultimate risks and uncertainties and receive the benefits of enterprise ownership.

d.
can negotiate individual contracts on behalf of the enterprise.

35. Hill Corp. had 600,000 shares of common stock outstanding on January 1, issued 900,000 shares on July 1, and had income applicable to common stock of $1,050,000 for the year ending December 31, 2012. Earnings per share of common stock for 2012 would be

a.
$1.75.

b.
$.83.

c.
$1.00.

d.
$1.17.

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