Question 1

During its first year of operations, Collin Raye Corporation had the following transactions pertaining to its common stock.

Jan. 10

 

Issued 80,000 shares for cash at $6 per share.

Mar. 1

 

Issued 5,000 shares to attorneys in payment of a bill for $35,000 for services rendered in helping the company to incorporate.

July 1

 

Issued 30,000 shares for cash at $8 per share.

Sept. 1

 

Issued 60,000 shares for cash at $10 per share.

 

(a)

 

Prepare the journal entries for these transactions, assuming that the common stock has a par value of $5 per share.

(b)

 

Prepare the journal entries for these transactions, assuming that the common stock is no-par with a stated value of $3 per share.



question 1 to 7

Bonds Payable
Buildings
Cash
Common Stock
Common Stock Dividend Distributable
Debt Investments
Dividends Payable
Discount on Bonds Payable
Equipment
Equity
Equity Investments
Income Summary
Land
Legal Fees Expense
No Entry
Organization Expense
Paid-in Capital from Treasury Stock
Paid-in Capital in Excess of Par - Common Stock
Paid-in Capital in Excess of Par - Preferred Stock
Paid-in Capital in Excess of Stated Value - Common Stock
Preferred Stock
Property Dividends Payable
Retained Earnings
Treasury Stock
Unamortized Bond Issue Costs
Unrealized Holding Gain or Loss - Income

Question 2

Lindsey Hunter Corporation is authorized to issue 50,000 shares of $5 par value common stock. During 2014, Lindsey Hunter took part in the following selected transactions.

1.

 

Issued 5,000 shares of stock at $45 per share, less costs related to the issuance of the stock totaling $7,000.

2.

 

Issued 1,000 shares of stock for land appraised at $50,000. The stock was actively traded on a national stock exchange at approximately $46 per share on the date of issuance.

3.

 

Purchased 500 shares of treasury stock at $43 per share. The treasury shares purchased were issued in 2010 at $40 per share.

 

(a)

 

Prepare the journal entry to record item 1.

(b)

 

Prepare the journal entry to record item 2.

(c)

 

Prepare the journal entry to record item 3 using the cost method.



Question 3

The stockholders’ equity accounts of G.K. Chesterton Company have the following balances on December 31, 2014.

Common stock, $10 par, 300,000 shares issued and outstanding

 

$3,000,000

Paid-in capital in excess of par—common stock

 

1,200,000

Retained earnings

 

5,600,000


Shares of G.K. Chesterton Company stock are currently selling on the Midwest Stock Exchange at $37.

Prepare the appropriate journal entries for each of the following cases. 

(a)

 

A stock dividend of 5% is (1) declared and (2) issued.

(b)

 

A stock dividend of 100% is (1) declared and (2) issued.

(c)

 

A 2-for-1 stock split is (1) declared and (2) issued.

 

 

Question 4

Anne Cleves Company reported the following amounts in the stockholders’ equity section of its December 31, 2013, balance sheet.

Preferred stock, 10%, $100 par (10,000 shares authorized, 2,000 shares issued)

 

$200,000

Common stock, $5 par (100,000 shares authorized, 20,000 shares issued)

 

100,000

Additional paid-in capital

 

125,000

Retained earnings

 

450,000

   Total

 

$875,000


During 2014, Cleves took part in the following transactions concerning stockholders’ equity.

1.

 

Paid the annual 2013 $10 per share dividend on preferred stock and a $2 per share dividend on common stock. These dividends had been declared on December 31, 2013.

2.

 

Purchased 1,700 shares of its own outstanding common stock for $40 per share. Cleves uses the cost method.

3.

 

Reissued 700 treasury shares for land valued at $30,000.

4.

 

Issued 500 shares of preferred stock at $105 per share.

5.

 

Declared a 10% stock dividend on the outstanding common stock when the stock is selling for $45 per share.

6.

 

Issued the stock dividend.

7.

 

Declared the annual 2014 $10 per share dividend on preferred stock and the $2 per share dividend on common stock. These dividends are payable in 2015.


(a) Prepare journal entries to record the transactions described above. 


(b) Prepare the December 31, 2014, stockholders’ equity section. Assume 2014 net income was $330,000. (Enter account name only .Do not provide any descriptive information.)

 

Question 5

Aubrey Inc. issued $4,000,000 of 10%, 10-year convertible bonds on June 1, 2014, at 98 plus accrued interest. The bonds were dated April 1, 2014, with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis.

On April 1, 2015, $1,500,000 of these bonds were converted into 30,000 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion.

(a)

 

Prepare the entry to record the interest expense at October 1, 2014. Assume that accrued interest payable was credited when the bonds were issued.

(b)

 

Prepare the entry to record the conversion on April 1, 2015. (Book value method is used.) Assume that the entry to record amortization of the bond discount and interest payment has been made.

Question 6

Illiad Inc. has decided to raise additional capital by issuing $170,000 face value of bonds with a coupon rate of 10%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at the rate of one warrant for each $100 bond sold. The value of the bonds without the warrants is considered to be $136,000, and the value of the warrants in the market is $24,000. The bonds sold in the market at issuance for $152,000.

(a) What entry should be made at the time of the issuance of the bonds and warrants? 


(b) Prepare the entry if the warrants were nondetachable. 

Question 7

Illiad Inc. has decided to raise additional capital by issuing $170,000 face value of bonds with a coupon rate of 10%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at the rate of one warrant for each $100 bond sold. The value of the bonds without the warrants is considered to be $136,000, and the value of the warrants in the market is $24,000. The bonds sold in the market at issuance for $152,000.

If the warrants were nondetachable, would the entries be different? Discuss.


Question 8

On January 1, 2013, Dagwood Company purchased at par 12% bonds having a maturity value of $300,000. They are dated January 1, 2013, and mature January 1, 2018, with interest receivable December 31 of each year. The bonds are classified in the held-to-maturity category.

(a)

 

Prepare the journal entry at the date of the bond purchase.

(b)

 

Prepare the journal entry to record the interest received for 2013.

(c)

 

Prepare the journal entry to record the interest received for 2014.

 

Question 8 to 12

Accumulated Other Comprehensive Loss
Bonds Payable
Cash
Call Option
Common Stock
Cost of Goods Sold
Debt Investments
Dividend Revenue
Dividend Receivable
Equity Investments
Fair Value Adjustment
Futures Contract
Gain on Sale of Investments
Gain on Settlement of Call Option
Gain on Settlement of Put Option
Interest Expense
Interest Receivable
Interest Revenue
Inventory
Loss on Impairment
Loss on Sale of Investments
Loss on Settlement of Call Option
Loss on Settlement of Put Option
No Entry
Notes Payable
Paid-in Capital in Excess of Par - Common Stock
Put Option
Recovery of Loss from Impairment
Retained Earnings
Revenue from Investment
Sales Revenue
Swap Contract
Unrealized Holding Gain or Loss - Equity
Unrealized Holding Gain or Loss - Income

Question 9

On January 1, 2013, Hi and Lois Company purchased 12% bonds, having a maturity value of $300,000, for $322,744.44. The bonds provide the bondholders with a 10.00% yield. They are dated January 1, 2013, and mature January 1, 2018, with interest receivable December 31 of each year. Hi and Lois Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale category. The fair value of the bonds at December 31 of each year-end is as follows.

2013

 

$320,500

 

2016

 

$310,000

2014

 

$309,000

 

2017

 

$300,000

2015

 

$308,000

 

 

 

 

 

(a)

 

Prepare the journal entry at the date of the bond purchase.

(b)

 

Prepare the journal entries to record the interest received and recognition of fair value for 2013.

(c)

 

Prepare the journal entry to record the recognition of fair value for 2014.



Question 10

On December 21, 2013, Bucky Katt Company provided you with the following information regarding its trading securities.

December 31, 2013

Investments (Trading)

 

Cost

 

Fair Value

 

Unrealized Gain (Loss)

Clemson Corp. stock

 

$20,000

 

$19,000

 

$(1,000

)

Colorado Co. stock

 

10,000

 

9,000

 

(1,000

)

Buffaloes Co. stock

 

20,000

 

20,600

 

600

 

Total of portfolio

 

$50,000

 

$48,600

 

(1,400

)

Previous fair value adjustment balance

 

 

 

 

 

0

 

Fair value adjustment—Cr.

 

 

 

 

 

$(1,400

)


During 2014, Colorado Company stock was sold for $9,400. The fair value of the stock on December 31, 2014, was Clemson Corp. stock—$19,100; Buffaloes Co. stock—$20,500.

(a)

 

Prepare the adjusting journal entry needed on December 31, 2013.

(b)

 

Prepare the journal entry to record the sale of the Colorado Company stock during 2014.

(c)

 

Prepare the adjusting journal entry needed on December 31, 2014.

Question 11

Parent Co. invested $1,000,000 in Sub Co. for 25% of its outstanding stock. Sub Co. pays out 40% of net income in dividends each year.

Use the information in the following T-account for the investment in Sub to answer the following questions.

Investment in Sub Co.

1,000,000 

 

110,000 

 

 

 44,000


(a) How much was Parent Co.’s share of Sub Co.’s net income for the year?


(b) How much was Parent Co.’s share of Sub Co.’s dividends for the year?


(c) What was Sub Co.’s total net income for the year?


(d) What was Sub Co.’s total dividends for the year?

Question 12

Jaycie Phelps Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2013. The purchase price was $1,200,000 for 50,000 shares. Kulikowski Inc. declared and paid an $0.85 per share cash dividend on June 30 and on December 31, 2014. Kulikowski reported net income of $730,000 for 2014. The fair value of Kulikowski’s stock was $27 per share at December 31, 2014.

(a) Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps cannot exercise significant influence over Kulikowski. The securities should be classified as available-for-sale. 


(b) Prepare the journal entries for Jaycie Phelps Inc. for 2013 and 2014, assuming that Phelps can exercise significant influence over Kulikowski. 


(c) At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2014? What is the total net income reported in 2014 under each of these methods?

 

E16-20.   (EPS: Simple Capital Structure) Raymond

 

 

On January 1, 2014, Lennon Industries had stock outstanding as follows.

6% Cumulative preferred stock, $100 par value, issued and outstanding 10,000 shares $1,000,000

Common stock, $10 par value, issued and outstanding 200,000 shares 2,000,000

 

To acquire the net assets of three smaller companies, Lennon authorized the issuance of an additional 160,000 common shares. The acquisitions took place as shown below.

Date of Acquisition Shares Issued

Company A April 1, 2014 50,000

Company B July 1, 2014 80,000

Company C October 1, 2014 30,000

 

On May 14, 2014, Lennon realized a $90,000 (before taxes) insurance gain on the expropriation of investments originally purchased in 2000.

On December 31, 2014, Lennon recorded net income of $300,000 before tax and exclusive of the gain.

Instructions

Assuming a 50% tax rate, compute the earnings per share data that should appear on the financial statements of Lennon Industries as of December 31, 2014. Assume that the expropriation is extraordinary

 

*E16-29.   (Stock-Appreciation Rights) Raymond

 

 

On December 31, 2010, Beckford Company issues 150,000 stock-appreciation rights to its officers entitling them to receive cash for the difference between the market price of its stock and a pre-established price of $10. The fair value of the SARs is estimated to be $4 per SAR on December 31, 2011; $1 on December 31, 2012; $10 on December 31, 2013; and $9 on December 31, 2014. The service period is 4 years, and the exercise period is 7 years.

Instructions

(a)   Prepare a schedule that shows the amount of compensation expense allocable to each year affected by the stock-appreciation rights plan.

(b)   Prepare the entry at December 31, 2014, to record compensation expense, if any, in 2014.

 

(c)   Prepare the entry on December 31, 2014, assuming that all 150,000 SARs are exercised.

 

 

 

 

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