ACC 423 Final Study Guide

ACC 423 Final Study Guide

Question 1-

Buttercup Corporation issued 330 shares of $10 par value common stock for $4,950. Prepare Buttercup journal entry.( List multiple debit credit from largest to smallest amount e.g. 10,5,2)

Question 2-

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

                  Common Stock $5 par value                                            $551,530

                  Treasury Stock                                                                     99,710

                  Retained Earnings                                                            2,377,200      

                  Paid in capital in excess of par                                        1,346,570

Prepare Wilco’s December 31,2012, stockholders equity section

                                                  Wilco Corporation

                                                 Stockholders Equity

                                                   December 31, 2012

Less :

                                                                                         $

Total stockholder’s equity

Question 3-

Woolford Inc. declared a cash dividend of $1.37 par share on its 2.49 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

(Preferred Dividends)

The outstanding capital stock of Pennington Corporation consists of 2200 shares of $101 par value , 6 % preferred, and, 8400 shares of $56 par value common.

Assuming that the company has retained earnings of $82,000, all of which is to be paid out in dividends, and that preferred dividends was not paid during the 2 years preceding the current year, state how much each class of stock should receive  under each of the following condition:

(a)    The preferred stock is noncumulative and nonparticipating

                       Preferred                                    Common

$                                                              $ 

(b)   The preferred stock is cumulative and nonparticipating

                    Preferred                                    Common

$                                                                  $

(C)The preferred stock is cumulative and Participating (Round rate of participation is 4 decimal places, e.g. 5.1234. Round final answer to 0 decimal places , e.g. 25,320)

    Preferred                                                           Common

$                                                                     $

Question-5

(Preferred Dividends)

Martinez Company’s ledger shows the following balances on December31, 2012.

5% preferred stock- $10 par value , outstanding 22,720 shares                      $227,220

Common stock- $100 par value, outstanding      34,080  shares                     3408,000

Retained Earnings                                                                                             715,680

Assuming that the directors decides to declare total dividend in the amount of $302,176, determine how much each class of stock should receive under each of  the conditions stated below . One years dividends are  in arrears on the preferred stock.

(a)    The preferred stock is cumulative and fully participating

               Preferred                                                           Common

$                                                                   $

(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 stocks (NOTE: Do not round rate of participation. Round final answers to zero decimal places,e.g. 12,310)

                  Preferred                                                           Common

$                                                                  $

Question-6

On January1,2012, Barwood corporation granted 5,430 options to executives. Each option entitles the holder to purchase one share of  Barewood’s $5 par value common stock at $50 per share at any time during next 5 years. The market price of the stock is $68 per share on the date of the grant. The fair value of the options at the grant date is $150,900. The period of benefits is 2 years. Prepare Barewood’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 moment)

      Question-7

Rockland corporation earned net income of $417,900 in 2012 and had 100000 shares of common stock outstanding throughout the year. Also outstanding all year was $1,114,400 of 10% bonds, which are convertible into 22,288  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 $2,57,000 in 2012 and had 50,000 shares of common stock outstanding throughout the year. Also outstanding all year were 6,330 shares of cumulative preferred stock , each convertible  into 2 shares of common . The preferred stock pays an annual  dividend of  $5 per share. DiCenta’s tax rate is 40%. Compute DiCenta’s 2012 diluted earnings per share. (Round answer to 2 decimal places, e.g. 5.23.)

$  

Question-9

Ferraro Inc. established a stock appreciation rights (SAR) program on January 1,2012, which entitles executives to receive cash at the exercise for the difference between market price of the stock and the pre-established price of $25 on 5,130 SARs. The required service period is 2 years. The fair value of SAR’s are determined  to be $7  on December 31,2012 and $14 on December31,2013.

Compute Parkin’s compensations for 2012.

$

Compute Parkin’s compensations for 2013.

$

      Question-10

Hillsborough company  has an available-for-sale investment in the bonds of  Schuyler with a carrying (and fair) value of $77,030. Hillsborough determined  that due topoor economic prospects for Schuyler, the bonds  have decreased  in value to $55,870. 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

Capital 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 6500 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 $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 $36.50. In addition, the  chief accountant of  Capriati told you that Capriati plans to hold  these securities for the long term but may sell them in order to earn profits from appreciation in prices.

(a) Prepare the journal entries to record the above three security purchases.

(b)Prepare the journal entry for the security sale on May 20.( List multiple debit/credit entries from largest to smallest amount, e.g. 10,5,2)

(a)    Compute unrealized gains or losses and prepare the adjusting entries for Capriati on December 31,2012.

Unrealized gain or loss ( For negative numbers use either a negative sign preceding the number, e.g. -45or parenthesis (45)

$

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 206,800 shares of common stock of Ramirez Fasion at a total cost of $15 per share on March 18,2012. On June 30, Ramirez declared and paid a $77,100 cash dividend. On December 31, Ramirez reported net income of $1,29,000 for the year. At December 31,the market price of the Ramirez Fasion 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 33,300 outstanding shares of common stock at total cost of $12 per share on January 1,2012 . On June 15,Nadal declared and paid a cash dividend of $45,000. On December 31, Nadal reported a net income of  $85,400 for the year.

Question -13

(Equity Method)

Gator Co.invested $1,080,000 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 answer.

                                             Investment  in  Demo  Co                

(a)    How much was Gator Co’s share of Demo Co’s  net income for the year?

$

(b)   How much was Gator Co’s share of Demo Co’s  dividend  for the year?

$

(c)    What was Demo Co’s total net income for the year

$

(d)   What was Demo Co’s total dividend 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 $1,220,000 for 50,000 shares. Handerson Inc declared and paid an $0.89 per share cash dividend  on June 30 and on December 31,2013.

(a)Prepare the journal entries for Gregory Inc. for 2012 and 2013,assuming that Gragory 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 Gragory  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 net income reported in 2013 under each of these methods?(If answer is zero,please enter a 0, do not leave any fields blank)

                                                   Fair Value Method                   Equity Method

                                                           $                                                   $      

Investment Amount(balance sheet)

Dividend rev.(inc.statement)

Revenue from investment

(inc,statement)

Question -15

(Call Option)

On January2, 2012 , Jones Company purchases a call option for $450 on Merchant common stock. The call option gives Jones the option to buy 1000 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 of Merchant stock is $61 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 of net income on entering into the derivative transaction for the period January 2 to March 31,2012?

Unrealized Holding Gain:          $

Question-16

In 2012 , Amirante Corporation had pretax financial income of $148,900 and taxable income of $107,900. The difference is due to the use of different depreciation method  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 $708,356, resulting from future taxable amounts of $2,083,400 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 41% 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)

 Service cost                                                                $451

Interest cost onP.B.O                                                   695

Return on Plan Asset                                                    789

Amortization of service cost                                           34

Amortization of loss                                                       67

Compute AMR Corporation’s 2009 pensions expense( in millions)

$

Question- 19

For Warren corporation ,year end planned assets were $2,159,200. At the beginning of the year , plan assets were $1,735,600. During the year, contributions to the pension fund were $1,20,000, 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 $37million and contributed $266 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

                                          Pension Assets                            Projrcted Benefit

                                           (At fair value)                              Obligation

      Plan X                   $603,000                                         $546,500

      Plan Y                     926,100                                            728,600

      Plan Z                     577,200                                            736,900

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

Question-22

For 2012,Sampsell Inc. computed its annual postretirement expense as $255,860. Sampsell’s contribution to the plan during 2012 was $199,210. 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

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 under income under the two methods was as follows: percentage-of-completion $1,48,600 and completed-contract $63,400. The tax  rate is 31%. Prepare Wertz 2012 journal entry to record the change in  accounting principle. (For multiple debit/credit entries, list amounts from largest to smallest,e.g. 10,,5,3,2)

Question-24

In 2012, Bailey Corporation discovered that equipment purchased on January 1, 2010, for $52,500 was expensed at that time . The equipment should have been depreciated  over 5 years, with no salvage value. The effective rate is 32%. Prepare Hiatt’s 2012 journal entry to correct the error. (For multiple debit/credit entries, list amounts from largest to smallest,e.g. 10,,5,3,2)

Question 25-

At January 1,2012, Beilder Company reported retained earnings of $2,002,000. In 2012 Beilder discovered that  2011 depriciation expense was understated by $355,000. In 2012 net income was $910,660 and dividends declared were $266,820.The tax rate is 36%. Complete the 2012 retained earnings statement  for Beilder Company. (List amounts from largest to smallest eg 10,5,3,2

                              Beilder Company

                     Retained Earnings Statement

                                                                               $

                             ;

                             ;

                             ;                                    

Question-26

Simmon  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 market value method. In 2012, Armstrong  earned the net income of $89,900 and paid dividends of $96,500. Prepare Simmons entries related to Armstrong’s net income and dividend’s assuming Simmons now own 11% 0f Armstrong’s stock. (For multiple debit/credit entries, list amounts from largest to

smallest,e.g. 10,,5,3,2)

Question-27

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

                     Service cost                                           $54,800

                     Interest cost                                             60,270

                     Actual Return on plan asset                    40,740

Compute Manno Corporation’s  2012 postretirement expense

  $

Question-28

Ravonette Corporation issued 310 shares of $13 par value common stock and 150 shares of $48 par value  preferred stock for a lum sum  of $17,400. The common stock has a market price of $23 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 antries from largest to smallest  amount,e.g. 10,5,2.Round answers to zero decimal places , e.g.16,210)

Question-29

Garfield Company purchased , as a held to maturity investment,$81,700 of the 9%, 12 years bonds of  Chester Corporation for $66,518, which provides an 12% return. Prepare Garfield’s journal entries for (a) the purchase of the investment (b) the receipt of annual inerest and annual 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

Clydesdale Corporation has a cumulative temporary difference related to depreciation of  $598,300 at December 31,2012 .This difference will reverse as follows :2013,$47,200;2014, $248,700 and 2015,$302,400.Enacted tax rates are 34% for 2013 and 2014 and 40% for 2015. Compute the amount Clydesdale should report as deferred tax liability  at December 31, 2012.

         $