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Pechstein Corporation issued
2,
0
50 shares of $10 par value common stock upon conversion of 1,060 shares of $50 par value preferred stock. The preferred stock was originally issued at $58 per share. The common stock is trading at $27 per share at the time of conversion.
Record the conversion of the preferred stock.
(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No entry” for the account titles and enter 0 for the amounts.)
|
Account Titles and Explanation |
Debit |
Credit |
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On January 1,
20
12 (the date of grant), Lutz Corporation issues 2,720 shares of restricted stock to its executives. The fair value of these shares is $127,500, and their par value is $10,200. The stock is forfeited if the executives do not complete 3 years of employment with the company.
Prepare the journal entry (if any) on January 1,
2012
, and on December 31, 2012, assuming the service period is 3 years.
(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No entry” for the account titles and enter 0 for the amounts.)
|
Date |
|||
|
1/1/12 |
|||
|
12/31/12 |
Rockland Corporation earned net income of $717,128 in 2012 and had 171,000 shares of common stock outstanding throughout the year. Also outstanding all year was $868,000 of 10
%
bonds, which are convertible into 17,000 shares of common. Rockland’s tax rate is 36 percent.
Compute Rockland’s 2012 diluted earnings per share.
(Round answer to 2 decimal places, e.g. $
3.
5
5.
)
|
Diluted earnings per share |
$ |
On January 1, 2012, when its $36 par value common stock was selling for $
9
0 per share, Bartz Corp. issued $10,260,000 of 8% convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five shares of the corporation’s common stock. The debentures were issued for $10,875,600. The present value of the bond payments at the time of issuance was $9,003,000, and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1,
2013
, the corporation’s $36 par value common stock was split 2 for 1, and the conversion rate for the bonds was adjusted accordingly. On January 1, 2014, when the corporation’s $16 par value common stock was selling for $175 per share, holders of 20% of the convertible debentures exercised their conversion options. The corporation uses the straight-line method for amortizing any bond discounts or premiums.
(a)
Prepare the entry to record the original issuance of the convertible debentures.
(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No entry” for the account titles and enter 0 for the amounts.)
(b)
Prepare the entry to record the exercise of the conversion option, using the book value method. Show supporting computations in good form.
(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No entry” for the account titles and enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit
On January 1, 2012, Magilla Inc. granted stock options to officers and key employees for the purchase of 20,
40
0 shares of the company’s $15 par common stock at $22 per share. The options were exercisable within a 5-year period beginning January 1, 2014, by grantees still in the employ of the company, and expiring December 31, 201
6.
The service period for this award is 2 years. Assume that the fair value option-pricing model determines total compensation expense to be $488,000.
On April 1, 2013, 3,060 options were terminated when the employees resigned from the company. The market price of the common stock was $35 per share on this date.
On March 31, 2014, 12,240 options were exercised when the market price of the common stock was $41 per share.
Prepare journal entries to record issuance of the stock options, termination of the stock options, exercise of the stock options, and charges to compensation expense, for the years ended December 31, 2012, 2013, and 201
4.
(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No entry” for the account titles and enter 0 for the amounts.)
|
4/1/13 |
|
|
12/31/13 |
|
|
3/31/14 |
Derrick Company issues 4,250 shares of restricted stock to its CFO, Dane Yaping, on January 1, 201
2.
The stock has a fair value of $124,800 on this date. The service period related to this restricted stock is 4 years. Vesting occurs if Yaping stays with the company for 4 years. The par value of the stock is $4. At December 31, 2013, the fair value of the stock is $157,900.
(a) Prepare the journal entries to record the restricted stock on January 1, 2012 (the date of grant), and December 31, 2013.
(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No entry” for the account titles and enter 0 for the amounts.)
(b) On March 4, 2014, Yaping leaves the company. Prepare the journal entry (if any) to account for this forfeiture.
(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select “No entry” for the account titles and enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit
The Ottey Corporation issued 10-year, $5,610,000 par, 7% callable convertible subordinated debentures on January 2, 2012. The bonds have a par value of $1,000, with interest payable annually. The current conversion ratio is 15:1, and in 2 years it will increase to 20:
1.
At the date of issue, the bonds were sold at 99. Bond discount is amortized on a straight-line basis. Ottey’s effective tax was 37%.
Net income
in 2012 was $7,505,000, and the company had 2,295,000 shares outstanding during the entire year.
Prepare a schedule to compute both basic and diluted earnings per share.
(Round answers to 2 decimal places, e.g. $2.55.)
|
Basic earnings per share |
|
The stockholders’ equity section of Martino Inc. at the beginning of the current year appears below. Common stock, $10 par value, authorized 1,181,000 30 8,000 shares issued and outstanding $3,080,000 Paid-in capital in excess of par—common stock 661,000 Retained earnings 666,000 During the current year, the following transactions occurred. | 1. | 2. | 3. | 4. | 5. | 6. |
| (a) |
|
No. |
Pawnee Inc. has issued three types of debt on January 1, 2012, the start of the company’s fiscal year.
$10.
11
million, 10-year, 14.00% unsecured bonds, interest payable quarterly. Bonds were priced to yield 12%.
$25.48 million par of 10-year, zero-coupon bonds at a price to yield 12% per year.
(c)
$16.13 million, 10-year, 11.00% mortgage bonds, interest payable annually to yield 12%.
Prepare a schedule that identifies the following items for each bond: (1) maturity value, (2) number of interest periods over life of bond,
(3)
stated rate per each interest period,
(4)
effective-interest rate per each interest period,
(5)
payment amount per period, and
(6)
present value of bonds at date of issue.
(Round stated and effective rate per period to 2 decimal places, e.g. 10.00% and present value of bonds to 0 decimal places, e.g. $38,54
8.
)
|
Unsecured |
Zero-Coupon |
Mortgage |
||||||||||
| (1) |
Maturity value |
|||||||||||
| (2) |
Number of interest periods |
|||||||||||
| (3) |
Stated rate per period |
% | ||||||||||
| (4) |
Effective rate per period |
|||||||||||
| (5) |
Payment amount per period |
|||||||||||
| (6) |
Present value |
Margaret Avery Company from time to time embarks on a research program when a special project seems to offer possibilities. In
2011
, the company expends $343,620 on a research project, but by the end of 2011 it is impossible to determine whether any benefit will be derived from it.
(a) The project is completed in 2012, and a successful patent is obtained. The R&D costs to complete the project are $125,930. The administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2012 total $32,100. The patent has an expected useful life of 5 years. Record these costs in journal entry form. Also, record patent amortization (full year) in 2012.
(Credit account titles are automatically indented when amount is entered. Do not indent manually.)
|
(To record research and development costs) |
|
(To record legal and administrative costs) |
|
(To record one year’s amortization expense) |
(b) In 2013, the company successfully defends the patent in extended litigation at a cost of $40,240, thereby extending the patent life to December 31, 2020. What is the proper way to account for this cost? Also, record patent amortization (full year) in 2013.
(Credit account titles are automatically indented when amount is entered. Do not indent manually.)
|
(To record legal cost of successfully defending patent) |
|
(To record one year’s amortization) |
Shown below is the liabilities and stockholders’ equity section of the balance sheet for
Ingalls Company
and
Wilder Company
. Each has assets totaling
$4,422,900
.
|
Ingalls Co. |
Wilder Co. |
|||||||||||
|
Current liabilities |
$312,800 |
$719,800 |
||||||||||
|
Long-term debt, 8% |
1,246,000 |
Common stock ($20 par) |
2,987,000 |
|||||||||
|
2,148,000 |
Retained earnings ( Cash dividends, $326,900) |
716,100 |
||||||||||
|
Retained earnings (Cash dividends, $222,800) |
||||||||||||
| $4,422,900 |
For the year, each company has earned the same income before interest and taxes.
|
Income before interest and taxes |
$ 1,202,000 |
|||
|
Interest expense |
99,680 |
0 | ||
|
1,102,320 |
1,202,000 | |||
|
Income taxes (40%) |
440,928 |
480,800 |
||
| Net income |
$661,392 |
$721,200 |
At year-end, the market price of Ingalls’s stock was $101 per share, and Wilder’s was $63.50. Assume balance sheet amounts are representative for the entire year.
(a) Calculate the return on total assets?
(Round answers to 2 decimal places, e.g. 16.85%.)
|
Return on total assets |
|||
| Wilder Company | |||
| Ingalls Company |
Which company is more profitable in terms of return on total assets?
(b) Calculate the return on stockholders’ equity?
(Round answers to 2 decimal places, e.g. 16.85%.)
|
Return on stockholders’ |
Which company is more profitable in terms of return on stockholders’ equity?
(c) Calculate the Net income per share.
(Round answers to 2 decimal places, e.g. $6.85.)
|
Net income per share |
Which company has the greater net income per share of stock? Neither company issued or reacquired shares during the year.
(d) From the point of view of net income, is it advantageous to the stockholders of Ingalls Co. to have the long-term debt outstanding?
(e) What is the book value per share for each company?
(Round answers to 2 decimal places, e.g. $6.85.)
|
Book value per share |
On January 1, 2012, Lindsey Company issued 10-year, $3,243,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 21 shares of Lindsey common stock. Lindsey’s net income in 2013 was
$26
5,000, and its tax rate was 40%. The company had 103,000 shares of common stock outstanding throughout 2012. None of the bonds were converted in 2012.
(a) Compute diluted earnings per share for 2012.
(Round answer to 2 decimal places, e.g. $2.55.)
Diluted earnings per share
$
(b) Compute diluted earnings per share for 2012, assuming the same facts as above, except that $1,030,000 of 6% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 10 shares of Lindsey common stock.
(Round answer to 2 decimal places, e.g. $2.55.)
Diluted earnings per share
$
Matthewson Company began operations on January 2, 2012. It employs 20 individuals who work 8-hour days and are paid hourly. Each employee earns 22 paid vacation days and 13 paid sick days annually. Vacation days may be taken after January 15 of the year following the year in which they are earned. Sick days may be taken as soon as they are earned; unused sick days accumulate.
Additional information is as follows.
|
Actual Hourly |
Vacation Days Used |
Sick Days Used |
|||||||||||||
|
2012 |
2013 |
2012 |
2013 |
||||||||||||
| $26 | $31 | 20 | 9 | 11 |
Matthewson Company has chosen not to accrue paid sick leave until used, and has chosen to accrue vacation time at expected future rates of pay without discounting. The company used the following projected rates to accrue vacation time.
|
Year in Which Vacation |
Projected Future Pay Rates |
|
$28 |
|
|
30 |
(a) Prepare journal entries to record transactions related to compensated absences during 2012 and 2013.
(If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
|
2012 |
|
|
(To record accrued vacation) |
|
|
(To record sick leave paid) |
|
|
(To record vacation time paid) |
|
|
2013 |
|
(b) Compute the amounts of any liability for compensated absences that should be reported on the balance sheet at December 31, 2012 and 2013.
|
Accrued liability |
Answer each of the questions in the following unrelated situations.
(a) The current ratio of a company is 5:1 and its acid-test ratio is 1:1. If the inventories and prepaid items amount to $492,400, what is the amount of current liabilities?
|
Current Liabilities |
(b) A company had an average inventory last year of $209,000 and its inventory turnover was 5. If sales volume and unit cost remain the same this year as last and inventory turnover is 9 this year, what will average inventory have to be during the current year?
(Round answer to 0 decimal places, e.g. 125.)
|
Average Inventory |
(c) A company has current assets of $88,790 (of which $37,160 is inventory and prepaid items) and current liabilities of $37,160. What is the current ratio? What is the acid-test ratio? If the company borrows $13,870 cash from a bank on a 120-day loan, what will its current ratio be? What will the acid-test ratio be?
(Round answers to 2 decimal places, e.g. 2.50.)
|
Current Ratio |
:1 |
|||||
|
Acid Test Ratio |
||||||
|
New Current Ratio |
||||||
|
New Acid Test Ratio |
(d) A company has current assets of $605,100 and current liabilities of $239,000. The board of directors declares a cash dividend of $191,200. What is the current ratio after the declaration but before payment? What is the current ratio after the payment of the dividend?
(Round answers to 2 decimal places, e.g. 2.50.)
|
Current ratio after the declaration but before payment |
|
Current ratio after the payment of the dividend |
Heartland Company’s budgeted sales and budgeted cost of goods sold for the coming year are $146,000,000 and $95,670,000, respectively. Short-term interest rates are expected to average 10%. If Heartland can increase inventory turnover from its present level of 9 times a year to a level of 10 times per year.
Compute its expected cost savings for the coming year.
|
Expected Cost Savings |
As loan analyst for Madison Bank, you have been presented the following information.
|
Plunkett Co. |
Herring Co. |
|||
|
Assets |
||||
| Cash |
$120,000 |
$320,000 |
||
|
Receivables |
220,000 |
302,000 |
||
|
Inventories |
570,000 |
518,000 |
||
|
Total current assets |
910,000 |
1,140,000 |
||
|
Other assets |
500,000 |
612,000 |
||
|
Total assets |
$1,410,000 |
$1,752,000 |
||
|
Liabilities and Stockholders’ Equity |
||||
|
$300,000 |
$350,000 |
|||
|
Long-term liabilities |
400,000 |
|||
|
Capital stock and retained earnings |
710,000 |
902,000 |
||
|
Total liabilities and stockholders’ equity |
||||
|
Annual sales |
$930,000 |
$1,500,000 |
||
|
Rate of gross profit on sales |
30 | 40 |
Each of these companies has requested a loan of $50,000 for 6 months with no collateral offered. In as much as your bank has reached its quota for loans of this type, only one of these requests is to be granted.
Which of the two companies, as judged by the information given above, would you recommend as the better risk and why? Assume that the ending account balances are representative of the entire year. (Refer to Exercise 24-4.)
|
Robbins Company is a wholesale distributor of professional equipment and supplies. The company’s sales have averaged about $900,000 annually for the 3-year period 2011-2013. The firm’s total assets at the end of 2013 amounted to $850,000. |
2011 |
|
The current ratio is increasing while the acid-test (quick) ratio is decreasing. Using the ratios provided, identify and explain the contributing factor(s) for this apparently divergent trend. |
|
Howser Inc. is a manufacturer of electronic components and accessories with total assets of $20,000,000. Selected financial ratios for Howser and the industry averages for firms of similar size are presented below. Howser 2013 | 2011 |
|
Presented below are comparative balance sheets for the Gilmour Company. GILMOUR COMPANY December 31 2013 2012 Assets Cash $180,000 $275,000 Accounts receivable (net) 219,500 155,300 Short-term investments 269,300 149,600 Inventories 1,059,600 979,300 Prepaid expenses 24,750 24,750 Fixed assets 2,585,200 1,949,400 Accumulated depreciation (1,000,500 ) (750,100 ) $3,337,850
$2,783,250
Liabilities and Stockholders’ Equity Accounts payable $50,020 $74,100 Accrued expenses 170,400 199,400 Bonds payable 450,500 189,600 Capital stock 2,100,000 1,769,300 Retained earnings 566,930
550,850
$3,337,850
$2,783,250
|
|
(a) Prepare a comparative balance sheet of Gilmour Company showing the percent each item is of the total assets or total liabilities and stockholders’ equity. GILMOUR COMPANY December 31 Assets 2013
2012 Cash $ 180,000 % $ 275,000 % Accounts receivable (net) 219,500 155,300 Short-term investments 269,300 149,600 Inventories 1,059,600 979,300 Prepaid expenses 24,750 24,750 Fixed assets 2,585,200 1,949,400 Accumulated depreciation ( 1,000,500 )
( 750,100 )
Total $ 3,337,850
% $ 2,783,250
%
Liabilities and Stockholders’ Equity Accounts payable $ 50,020 % $ 74,100 % Accrued expenses 170,400 199,400 Bonds payable 450,500 189,600 Capital stock 2,100,000 1,769,300 Retained earnings 566,930
550,850
Total $ 3,337,850
% $ 2,783,250
% |
|
(b) The parts of this question must be completed in order. This part will be available when you complete the part above. |
On January 1, 2012, Secada Co. leased a building to Ryker Inc. The relevant information related to the lease is as follows.
|
The lease arrangement is for 10 years. |
|
The leased building cost $3,284,500 and was purchased for cash on January 1, 2012. |
|
The building is depreciated on a straight-line basis. Its estimated economic life is 50 years with no salvage value. |
|
Lease payments are $207,030 per year and are made at the end of the year. |
|
Property tax expense of $85,450 and insurance expense of $11,830 on the building were incurred by Secada in the first year. Payment on these two items was made at the end of the year. |
|
Both the lessor and the lessee are on a calendar-year basis. |
(a) Prepare the journal entries that Secada Co. should make in 2012.
(Credit account titles are automatically indented when amount is entered. Do not indent manually.)
|
(To record receipt of lease payment.) |
|
(To record depreciation.) |
|
(To record insurance and property tax.) |
(b) Prepare the journal entries that Ryker Inc. should make in 2012.
(Credit account titles are automatically indented when amount is entered. Do not indent manually.)
(c) If Secada paid $29,500 to a real estate broker on January 1, 2012, as a fee for finding the lessee, how much should be reported as an expense for this item in 2012 by Secada Co.?
|
Expense should be reported |
Below is the net income of Benchley Instrument Co., a private corporation, computed under the three inventory methods using a periodic system.
|
FIFO |
Average Cost |
LIFO |
|
|
2010 |
$25,637 |
$22,072 |
$19,921 |
|
30,146 |
24,390 |
20,221 |
|
|
29,709 |
27,071 |
24,445 |
|
|
34,015 |
30,504 |
26,417 |
(Ignore tax considerations.)
(a) Assume that in 2013 Benchley decided to change from the FIFO method to the average cost method of pricing inventories. Prepare the journal entry necessary for the change that took place during 2013, and show net income reported for 2010, 2011, 2012, and 2013.
(Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation
Debit
Credit
|
2010 |
|
(b) Assume that in 2013 Benchley, which had been using the LIFO method since incorporation in 2010, changed to the FIFO method of pricing inventories. Prepare the journal entry necessary to record the change in 2013 and show net income reported for 2010, 2011, 2012, and 2013.
(Credit account titles are automatically indented when amount is entered. Do not indent manually.)
Account Titles and Explanation
Debit
Credit
2013
2012
2011
2010
Net income
$
$
$
$
Messner Co. reported $147,670 of net income for 2012. The accountant, in preparing the statement of cash flows, noted several items occurring during 2012 that might affect cash flows from operating activities. Following are the items listed below.
|
Messner purchased 140 shares of treasury stock at a cost of $19 per share. These shares were then resold at $27 per share. |
|
|
Messner sold 120 shares of IBM common at $210 per share. The acquisition cost of these shares was $160 per share. This investment was shown on Messner’s December 31, 2011, balance sheet as an available-for-sale security. |
|
|
Messner revised its estimate for bad debts. Before 2012, Messner’s bad debt expense was 1% of its net sales. In 2012, this percentage was increased to 2%. Net sales for 2012 were $492,600, and net accounts receivable decreased by $11,810 during 2012. |
|
|
Messner issued 520 shares of its $11 par common stock for a patent. The market price of the shares on the date of the transaction was $25 per share. |
|
|
Depreciation expense is $39,330. |
|
|
Messner Co. holds 32% of the Sanchez Company’s common stock as a long-term investment. Sanchez Company reported $25,200 of net income for 2012. |
|
| 7. |
Sanchez Company paid a total of $1,900 of cash dividends to all investees in 2012. |
| 8. |
Messner declared a 10% stock dividend. One thousand shares of $11 par common stock were distributed. The market price at date of issuance was $19 per share. |
Prepare a schedule that shows the net cash flows from operating activities using the indirect method. Assume no items other than those listed above affected the computation of 2012 net cash flows from operating activities.
(If an amount reduces the account balance then enter with negative sign.)
|
Messner Co. |
|
Adjustments to reconcile net income to |
|
Presented below are comparative balance sheets for the Gilmour Company. GILMOUR COMPANY December 31 2013 2012 Assets Cash $180,200 $275,700 Accounts receivable (net) 220,400 154,300 Short-term investments 270,100 149,400 Inventories 1,061,000 980,700 Prepaid expenses 24,140 24,140 Fixed assets 2,585,600 1,949,300 Accumulated depreciation (1,000,900 ) (750,100 ) $3,340,540
$2,783,440
Liabilities and Stockholders’ Equity Accounts payable $50,700 $75,180 Accrued expenses 169,500 200,500 Bonds payable 450,100 190,600 Capital stock 2,100,000 1,770,300 Retained earnings 570,240
546,860
$3,340,540
$2,783,440
(a) Prepare a comparative balance sheet of Gilmour Company showing the percent each item is of the total assets or total liabilities and stockholders’ equity. GILMOUR COMPANY December 31 Assets 2013
2012 Cash $ 180,200 % $ 275,700 % Accounts receivable (net) 220,400 154,300 Short-term investments 270,100 149,400 Inventories 1,061,000 980,700 Prepaid expenses 24,140 24,140 Fixed assets 2,585,600 1,949,300 Accumulated depreciation ( 1,000,900 )
( 750,100 )
Total $ 3,340,540
% $ 2,783,440
%
Liabilities and Stockholders’ Equity Accounts payable $ 50,700 % $ 75,180 % Accrued expenses 169,500 200,500 Bonds payable 450,100 190,600 Capital stock 2,100,000 1,770,300 Retained earnings 570,240
546,860
Total $ 3,340,540
% $ 2,783,440
%
(b) The parts of this question must be completed in order. This part will be available when you complete the part above. |
