ACC 423 Final Exam

Question 2

Wilco Corporation has the following account balances at December 31, 2012.

Prepare Wilco's December 31, 2012, stockholders' equity section.

Question 3

Woolford Inc. declared a cash dividend of $1.26 per share on its 2.07 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.

Question 4

(Preferred Dividends)

The outstanding capital stock of Pennington Corporation consists of 2,300 shares of $106 par value, 6% preferred, and 5,300 shares of $54 par value common.

Assuming that the company has retained earnings of $86,000, 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.

Question 6

On January 1, 2012, Barwood Corporation granted 5,070 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 $75 per share on the date of grant. The fair value of the options at the grant date is $151,700. The period of benefit is 2 years. Prepare Barwood's journal entries for January 1, 2012, and December 31, 2012 and 2013.

Question 7

Rockland Corporation earned net income of $357,600 in 2012 and had 100,000 shares of common stock outstanding throughout the year. Also outstanding all year was $953,600 of 10% bonds, which are convertible into 19,072 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.)

Question 8

DiCenta Corporation reported net income of $261,000 in 2012 and had 50,000 shares of common stock outstanding throughout the year. Also outstanding all year were 5,520 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.

Question 9

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 $22 on 5,440 SARs. The required service period is 2 years. The fair value of the SAR's are determined to be $4 on December 31, 2012, and $11 on December 31, 2013.

Question 10

Hillsborough Co. has an available-for-sale investment in the bonds of Schuyler with a carrying (and fair) value of $83,750. Hillsborough determined that due to poor economic prospects for Schuyler, the bonds have decreased in value to $51,070. 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

(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 13,500 shares of Gonzalez Company's common stock at $50.25 per share plus commission $2,970.
2. On April 1, purchased 7,500 shares of Belmont Co.'s common stock at $78.00 per share plus commission $5,055.
3. On September 10, purchased 10,500 shares of Thep Co.'s preferred stock at $39.75 per share plus commission $7,365.

On May 20, 2012, Capriati sold 4,500 shares of Gonzalez Company's common stock at a market price of $52.50 per share less brokerage commissions, taxes, and fees of $4,275. The year-end fair values per share were: Gonzalez $45.00, Belmont $82.50, and Thep $42.00. 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

(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 201,200 shares of common stock of Ramirez Fashion at a total cost of $16 per share on March 18, 2012. On June 30, Ramirez declared and paid a $81,800 cash dividend. On December 31, Ramirez reported net income of $126,000 for the year. At December 31, the market price of Ramirez Fashion was $17 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 31,600 outstanding shares of common stock at a total cost of $10 per share on January 1, 2012. On June 15, Nadal declared and paid a cash dividend of $43,000. On December 31, Nadal reported a net income of $88,900 for the year.

Question 14

(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 $1,450,000 for 50,000 shares. Handerson Inc. declared and paid an $0.92 per share cash dividend on June 30 and on December 31, 2013. Handerson reported net income of $749,000 for 2013. The fair value of Handerson's stock was $33 per share at December 31, 2013.

Question 16

In 2012, Amirante Corporation had pretax financial income of $237,500 and taxable income of $195,900. 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.

Question 17

At December 31, 2012, Fell Corporation had a deferred tax liability of $725,050, resulting from future taxable amounts of $2,132,500 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 38% for 2013 and future years. Prepare the journal entry for Fell to adjust the deferred tax liability.

Question 18

AMR Corporation (parent company of American Airlines) reported the following for 2009 (in millions).

Compute AMR Corporation's 2009 pension expense (in millions).

Question 19

For Warren Corporation, year-end plan assets were $2,085,200. At the beginning of the year, plan assets were $1,696,000. 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.

Question 20

For 2010, Campbell Soup Company had pension expense of $34 million and contributed $274 million to the pension fund. Prepare Campbell Soup Company's journal entry to record pension expense and funding.

Question 21

Lahey Corp. has three defined-benefit pension plans as follows.

How will Lahey report these multiple plans in its financial statements?

Question 22

For 2012, Sampsell Inc. computed its annual postretirement expense as $253,690. Sampsell's contribution to the plan during 2012 was $191,340. Prepare Sampsell's 2012 entry to record postretirement expense.

Question 23

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  $131,000, and completed-contract $61,300. The tax rate is 34%. Prepare Wertz's 2012 journal entry to record the change in accounting principle.

Question 24

In 2012, Bailey Corporation discovered that equipment purchased on January 1, 2010, for $97,500 was expensed at that time. The equipment should have been depreciated over 5 years, with no salvage value. The effective tax rate is 28%. Prepare Hiatt's 2012 journal entry to correct the error.

Question 25

At January 1, 2012, Beilder Company reported retained earnings of $2,021,600. In 2012, Beilder discovered that 2011 depreciation expense was understated by $398,000. In 2012, net income was $873,690 and dividends declared were $203,110. The tax rate is 39%. Complete the 2012 retained earnings statement for Beilder Company.

Question 26

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 $91,300. Prepare Simmons's entries related to Armstrong's net income and dividends, assuming Simmons now owns 12% of Armstrong's stock. 

Question 27

Manno Corporation has the following information available concerning its postretirement benefit plan for 2012.

Compute Manno's 2012 postretirement expense.

Question 28

Ravonette Corporation issued 310 shares of $13 par value common stock and 140 shares of $46 par value preferred stock for a lump sum of $17,600. The common stock has a market price of $22 per share, and the preferred stock has a market price of $95 per share. Prepare the journal entry to record the issuance.

Question 29

Garfield Company purchased, as a held-to-maturity investment, $93,100 of the 9%, 6-year bonds of Chester Corporation for $81,617, which provides an 12% 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.

Question 30

Clydesdale Corporation has a cumulative temporary difference related to depreciation of $623,100 at December 31, 2012. This difference will reverse as follows: 2013, $52,400; 2014, $259,300; and 2015, $311,400. 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