Questions

(TCO C) If intangible assets are acquired for stock, how is the cost of the intangible determined?

2. (TCO D) Yates Co. began operations on January 2, 2010. It employs 15 people who work 8-hour days. Each employee earns 10 paid vacation days annually. Vacation days may be taken after January 10 of the year following the year in which they are earned. The average hourly wage rate was $24.00 in 2010 and $25.50 in 2011. The average number of vacation days used by each employee in 2011 was nine. Yates Co. accrues the cost of compensated absences at rates of pay in effect when earned. Instructions:

Prepare journal entries to record the transactions related to paid vacation days during 2010 and 2011.

3. (TCO D) Hurst, Incorporated sold its 8% bonds with a maturity value of $3,000,000 on August 1, 2009 for $2,946,000. At the time of the sale, the bonds had 5 years until they reached maturity. Interest on the bonds is payable semiannually on August 1 and February 1. The bonds are callable at 104 at any time after August 1, 2011. By October 1, 2011, the market rate of interest has declined and the market price of Hurst's bonds has risen to a price of 101. The firm decides to refund the bonds by selling a new 6% bond issue to mature in 5 years. Hurst begins to reacquire its 8% bonds in the market and is able to purchase $500,000 worth at 101. The remainder of the outstanding bonds is reacquired by exercising the bonds' call feature. In the final analysis, how much was the gain or loss experienced by Hurst in reacquiring its 8% bonds? (Assume the firm used straight-line amortization.) Show calculations.

4. (TCO E) 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 value, and the common stock has a market value of $25 per share. (Points : 30)      

5. (TCO F)

            The stockholders’ equity section of Lemay Corporation shows the following on December 31, 2011:

            Preferred stock – 6%, 4,100 par, 4,000 shares outstanding                                  $ 400,000

            Common stock – $20 par, 60,000 shares outstanding                                        600,000

            Paid-in capital in excess of par                                                                         200,000

            Retained Earnings                                                                                             114,000

            Total stockholders’ equity                                                                     $1,314,000

Instructions:

            Assuming that all of the company’s retained earnings are to be paid out in dividends on 12/31/11 and preferred dividends were last paid on 12/31/09, show how much the preferred and common stockholders should receive if the preferred stock is cumulative and fully participating.

6. (TCO A) At December 31, 2010, Kifer Company had 500,000 shares of common stock outstanding. On October 1, 2011, an additional 100,000 shares of common stock were issued. In addition, Kifer had $10,000,000 of 6% convertible bonds outstanding at December 31, 2010, which are convertible into 225,000 shares of common stock. No bonds were converted into common stock in 2011. The net income for the year ended December 31, 2011, was $3,000,000. Assuming the income tax rate was 30%, what would be the diluted earnings per share for the year ended December 31, 2011 (rounded to the nearest penny)? Show all computations.