Question 1: On September 1, 2017, Hyde Corp., a newly formed company, had the following stock issued and outstanding:
- Common stock, no par, $1 stated value, 5,000 shares originally issued at $15 per share.
- Preferred stock, $10 par value, 1,500 shares originally issued for $25 per share. Hyde's September 1, 2017 statement of stockholders' equity should report.
|
Common Stock
|
Preferred Stock
|
Additional Paid-in capital
|
|
$5,000
|
$37,500
|
$70,000
|
|
$75,000
|
$15,000
|
$22,500
|
|
$5,000
|
$15,000
|
$92,500
|
|
$75,000
|
$37,000
|
$0
|
Question 2: Beck Corp. issued 200,000 shares of common stock when it began operations in year 1 and issued an additional 100,000 shares in year 2. Beck also issued preferred stock convertible to 100,000 shares of common stock. In year 3, Beck purchased 75,000 shares of its common stock and held it in Treasury. At December 31, year 3, how many shares of Beck's common stock were outstanding?
- 225,000
- 325,000
- 400,000
- 300,000
Question 3: Jones Co. had 50,000 shares of $5 par value common stock outstanding at January 1. On August 1, Jones declared a 5% stock dividend followed by a two-for-one stock split on September 1. What amount should Jones report as common shares outstanding at December 31?
- 50,000
- 52,500
- 105,000
- 100,000
Question 4: Sweet Corp. had $100,000 of 7%, $20 par value preferred stock and 12,000 shares of $25 par value common stock outstanding throughout 2017.
Assuming that total dividends declared in 2017 were $64,000, and that the preferred stock is not cumulative but is fully participating, common stockholders should receive 2017 dividends of what amount?
Assuming that total dividends declared in 2017 were $64,000, and that the preferred stock is fully participating and cumulative with preferred dividends in arrears for 2016, preferred stockholders should receive 2017 dividends totaling what amount?
Assuming that total dividends declared in 2017 were $30,000, that the preferred stock is cumulative, nonparticipating, and was issued on January 1, 2016, and that $5,000 of preferred dividends were declared and paid in 2016, the common stockholders should receive 2017 dividends totaling what amount?
Question 5: Pearl Corporation issued 380 shares of $10 par value common stock and 107 shares of $50 par value preferred stock for a lump sum of $15,507. The common stock has a market price of $20 per share, and the preferred stock has a market price of $90 per share.
Prepare the journal entry to record the issuance.
Question 6: During its first year of operations, Waterway Corporation had the following transactions pertaining to its common stock.
Jan. 10 - Issued 85,000 shares for cash at $6 per share.
Mar. 1 - Issued 5,000 shares to attorneys in payment of a bill for $36,100 for services rendered in helping the company to incorporate.
July 1 - Issued 31,300 shares for cash at $8 per share.
Sept. 1 - Issued 63,200 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 $2 per share.
Question 7: A restricted stock award was granted at the beginning of 2015 calling for 3,000 shares of stock to be awarded to executives at the beginning of 2019. The fair value of one option was $20 at grant date. During 2017, 100 shares were forfeited because an executive left the firm. What amount of compensation expense is recognized for 2017?
- $15,000
- $13,500
- $14,500
- $14,000
Question 8: A company had the following outstanding shares as of January 1, year 2:
Preferred stock, $60 par, 4%, cumulative 10,000 shares
Common stock, $3 par 50,000 shares
On April 1, year 2, the company sold 8,000 shares of previously unissued common stock. No dividends were in arrears on January 1, year 2, and no dividends were declared or paid during year 2. Net income for year 2 totaled $236,000. What amount is basic earnings per share for the year ended December 31, year 2?
Question 9: Skysong Corporation has outstanding 2,000 $1,000 bonds, each convertible into 50 shares of $10 par value common stock. The bonds are converted on December 31, 2017, when the unamortized discount is $27,900 and the market price of the stock is $21 per share.
Record the conversion using the book value approach.
Question 10: On January 1, 2017, Novak Corporation granted 2,100 shares of restricted $5 par value common stock to executives. The market price (fair value) of the stock is $63 per share on the date of grant. The period of benefit is 2 years.
Prepare Novak's journal entries for January 1, 2017, and December 31, 2017 and 2018.
Question 11: Indigo Company purchased, on January 1, 2017, as a held-to-maturity investment, $72,000 of the 9%, 5-year bonds of Chester Corporation for $66,677, which provides an 11% return.
Prepare Indigo'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 12: The following information relates to Headland Co. for the year ended December 31, 2017: net income 1,233 million; unrealized holding loss of $11.7 million related to available-for-sale debt securities during the year; accumulated other comprehensive income of $52.9 million on December 31, 2016. Assuming no other changes in accumulated other comprehensive income.
Determine (a) other comprehensive income for 2017, (b) comprehensive income for 2017, and (c) accumulated other comprehensive income at December 31, 2017.
Question 13: Presented below are two independent cases related to available-for-sale debt investments.
|
|
Case 1
|
Case 2
|
|
Amortized cost
|
$41,640
|
$91,800
|
|
Fair value
|
32,220
|
102,220
|
|
Expected credit losses
|
27,360
|
83,660
|
For each case, determine the amount of impairment loss, if any.
Question 14: On January 1, 2017, Vaughn Company purchased 10% bonds having a maturity value of $220,000, for $237,567.22. The bonds provide the bondholders with a 8% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest receivable January 1 of each year. Vaughn Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category.
Prepare the journal entry at the date of the bond purchase.
Prepare a bond amortization schedule.
Prepare the journal entry to record the interest revenue and the amortization at December 31, 2017.
Prepare the journal entry to record the interest revenue and the amortization at December 31, 2018.
Question 15: At December 31, 2017, the available-for-sale debt portfolio for Grouper, Inc. is as follows:
|
Security
|
Cost
|
Fair Value
|
Unrealized Gain (Loss)
|
|
A
|
$44,625
|
$38,250
|
$(6,375)
|
|
B
|
31,875
|
35,700
|
3,825
|
|
C
|
58,650
|
65,025
|
6,375
|
|
Total
|
$135,150
|
$138,975
|
3,825
|
|
Previous fair value adjustment balance-Dr.
|
1,020
|
|
Fair value adjustment-Dr.
|
$2,805
|
On January 20, 2018, Grouper, Inc. sold security A for $38,505. The sale proceeds are net of brokerage fees.
Grouper Inc. reports net income in 2017 of $306,000 and in 2018 of $357,000. Total holding gains (including any realized holding gain or loss) equal $102,000 in 2018.
Prepare a statement of comprehensive income for 2017, starting with net income.
Prepare a statement of comprehensive income for 2018, starting with net income.
Question 16: Cullumber financial income for Lake Inc. is $340,000, and its taxable income is $90,000 for 2018. Its only temporary difference at the end of the period relates to a $70,000 difference due to excess depreciation for tax purposes. If the tax rate is 40% for all periods, compute the amount of income tax expense to report in 2018. No deferred income taxes existed at the beginning of the year.
Question 17: Pharoah Corporation began operations in 2017 and reported pretax financial income of $246,000 for the year. Pharoah's tax depreciation exceeded its book depreciation by $39,000. Pharoah's tax rate for 2017 and years thereafter is 30°h. Assume this is the only difference between Pharoah's pretax financial income and taxable income.
Prepare the journal entry to record the income tax expense, deferred income taxes, and income taxes payable.
Show how the deferred tax liability will be classified on the December 31, 2017, balance sheet.
Question 18: Cullumber Corporation had the following tax information.
|
Year
|
Taxable Income
|
Tax Rate
|
Taxes Paid
|
|
2015
|
$294,000
|
35%
|
$102,900
|
|
2016
|
332,000
|
30%
|
99,600
|
|
2017
|
399,000
|
30%
|
119,700
|
In 2018, Cullumber suffered a net operating loss of $476,000, which it elected to carry back. The 2018 enacted tax rate is 29%.
Prepare Cullumber's entry to record the effect of the loss carry back.
Question 19: The following information is available for Blossom Corporation for 2016 (its first year of operations).
1. Excess of tax depreciation over book depreciation, $38,600. This $38,600 difference will reverse equally over the years 2017-2020.
2. Deferral, for book purposes, of $21,000 of rent received in advance. The rent will be recognized in 2017.
3. Pretax financial income, $326,000.
4. Tax rate for all years, 30%.
Compute taxable income for 2016.
Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2016.
Prepare the journal entry to record income tax expense, deferred income taxes, and income taxes payable for 2017, assuming taxable income of $347,800.
Question 20: Brass Co. reported income before income tax expense of $60,000 for 2017. Brass had no permanent or temporary timing differences for tax purposes. Brass has an effective tax rate of 30% and a $40,000 net operating loss carry-forward from 2016. What is the maximum income tax benefit that Brass can realize from the loss carry-forward for 2017?
- $12,000
- $40,000
- $18,000
- $20,000
Question 21: The following information pertains to Seda Co.'s pension plan:
Actuarial estimate of projected benefit obligation at January 1, 2017 - $72,000
Assumed discount rate - 10%
Service costs for 2017 - $18,000
Pension benefits paid during 2017 - $15,000
If no change in actuarial estimates occurred during 2017, Seda's projected benefit obligation at December 31, 2017 was
- $82,200
- $79,200
- $64,200
- $75,000
Question 22: Ivanhoe Corporation has the following balances at December 31, 2017.
Projected benefit obligation - $2,357,000
Plan assets at fair value - 1,791,000
Accumulated OCI (PSC) - 1,182,000
What is the amount for pension liability that should be reported on Ivanhoe's balance sheet at December 31, 2017?
Question 23: The following information is available for the pension plan of Martinez Company for the year 2017.
Actual and expected return on plan assets - $ 16,300
Benefits paid to retirees - 38,400
Contributions (funding) - 94,400
Interest/discount rate - 11 %
Prior service cost amortization - 8,800
Projected benefit obligation, January 1, 2017 - 510,000
Service cost - 63,300
Compute pension expense for the year 2017.
Prepare the journal entry to record pension expense and the employer's contribution to the pension plan in 2017.
Question 24: Metlock Company has five employees participating in its defined benefit pension plan. Expected years of future service for these employees at the beginning of 2017 are as follows.
|
Employee
|
Future Years of Service
|
|
Jim
|
3
|
|
Paul
|
4
|
|
Nancy
|
5
|
|
Dave
|
6
|
|
Kathy
|
6
|
On January 1, 2017, the company amended its pension plan, increasing its projected benefit obligation by $85,680.
Compute the amount of prior service cost amortization for the years 2017 through 2022 using the years-of-service method, setting up appropriate schedules.
Question 25: Cheyenne Company received the following selected information from its pension plan trustee concerning the operation of the company's defined benefit pension plan for the year ended December 31, 2017.
|
|
January 1, 2017
|
December 31, 2017
|
|
Projected benefit obligation
|
$1,517,000
|
$1,545,000
|
|
Market-related and fair value of plan assets
|
784,000
|
1,107,400
|
|
Accumulated benefit obligation
|
1,568,000
|
1,689,300
|
|
Accumulated OCI (G/L) - Net gain
|
0
|
(201,700)
|
The service cost component of pension expense for employee services rendered in the current year amounted to $78,000 and the amortization of prior service cost was $121,300. The company's actual funding (contributions) of the plan in 2017 amounted to $245,000. The expected return on plan assets and the actual rate were both 10%; the interest/discount (settlement) rate was 10%. Accumulated other comprehensive income (PSC) had a balance of $1,213,000 on January 1, 2017. Assume no benefits paid in 2017.
Determine the amounts of the components of pension expense that should be recognized by the company in 2017.
Prepare the journal entry to record pension expense and the employer's contribution to the pension plan in 2017.
Indicate the pension-related amounts that would be reported on the income statement and the balance sheet for Cheyenne Company for the year 2017.
Question 26: During 2017, Orca Corp. decided to change from the FIFO method of inventory valuation to the weighted-average method. Inventory balances under each method were as follows:
FIFO Weighted-average
January 1, 2017 $71,000 $77,000
December 31, 2017 $79,000 $83,000
Orca's income tax rate is 30%.
In its 2017 financial statements, what amount should Orca report as the cumulative effect of this accounting change?
- $2,800
- $6,000
- $4,000
- $4,200
Question 27: A partial trial balance of Sheffield Corporation is as follows on December 31, 2018.
|
|
Dr.
|
Cr.
|
|
Supplies
|
$2,400
|
|
|
Salaries and wages payable
|
|
$1,400
|
|
Interest Receivable
|
5,400
|
|
|
Prepaid Insurance
|
83,000
|
|
|
Unearned Rent
|
|
0
|
|
Interest Payable
|
|
15,500
|
Additional adjusting data:
1. A physical count of supplies on hand on December 31, 2018, totaled $1,100.
2. Through oversight, the Salaries and Wages Payable account was not changed during 2018. Accrued salaries and wages on December 31, 2018, amounted to $4,300.
3. The Interest Receivable account was also left unchanged during 2018. Accrued interest on investments amounts to $4,800 on December 31, 2018.
4. The unexpired portions of the insurance policies totaled $60,200 as of December 31, 2018.
5. $26,000 was received on January 1, 2018, for the rent of a building for both 2018 and 2019. The entire amount was credited to rent revenue.
6. Depreciation on equipment for the year was erroneously recorded as $4,600 rather than the correct figure of $46,000.
7. A further review of depreciation calculations of prior years revealed that equipment depreciation of $6,900 was not recorded. It was decided that this oversight should be corrected by a prior period adjustment.
Assuming that the books have not been closed, what are the adjusting entries necessary at December 31, 2018?
Assuming that the books have been closed, what are the adjusting entries necessary at December 31, 2018?
Pass the necessary adjusting entries for the following taking into account income tax effects (4Q% tax rate) and assuming that the books have been closed.
1. Depreciation on equipment for the year was erroneously recorded as $4,600 rather than the correct figure of $46,000.
2. A further review of depreciation calculations of prior years revealed that equipment depreciation of $6,900 was not recorded. It was decided that this oversight should be corrected by a prior period adjustment.
Question 28: Ayayai Tool Company's December 31 year-end financial statements contained the following errors.
|
|
December 31, 2017
|
December 31, 2018
|
|
Ending inventory
|
$9,000 understated
|
$8,000 overstated
|
|
Depreciation expense
|
$2,300 understated
|
-
|
An insurance premium of $69,600 was prepaid in 2017 covering the years 2017, 2018, and 2019. The entire amount was charged to expense in 2017. In addition, on December 31, 2018, fully depreciated machinery was sold for $15,900 cash, but the entry was not recorded until 2019. There were no other errors during 2017 or 2018, and no corrections have been made for any of the errors. (Ignore income tax considerations.)
(a) Compute the total effect of the errors on 2018 net income.
(b) Compute the total effect of the errors on the amount of Ayayai's working capital at December 31, 2018.
(c) Compute the total effect of the errors on the balance of Ayayai's retained earnings at December 31, 2018.
Question 29: Presented below are income statements prepared on a LIFO and FIFO basis for Stellar Company, which started operations on January 1, 2016. The company presently uses the LIFO method of pricing its inventory and has decided to switch to the FIFO method in 2017. The FIFO income statement is computed in accordance with the requirements of GAAP. Stellar's profit-sharing agreement with its employees indicates that the company will pay employees 10% of income before profit-sharing. Income taxes are ignored.
|
|
LIFO Basis
|
FIFO Basis
|
|
|
2017
|
2016
|
2017
|
2016
|
|
Sales
|
$3,000
|
$3,000
|
$3,000
|
$3,000
|
|
Cost of goods sold
|
1,150
|
1,030
|
1,130
|
950
|
|
Operating expenses
|
1,030
|
1,030
|
1,030
|
1,030
|
|
Income before profit-sharing
|
820
|
940
|
840
|
1,020
|
|
Profit-sharing expense
|
82
|
94
|
92
|
94
|
|
Net Income
|
$738
|
$846
|
$748
|
$926
|
Answer the following questions:
If comparative income statements are prepared, what net income should Stellar report in 2016 and 2017?
Assume that Stellar has a beginning balance of retained earnings at January 1, 2017, of $8,070 using the LIFO method. The company declared and paid dividends of $520 in 2017. Prepare the retained earnings statement for 2017, assuming that Stellar has switched to the FIFO method.
Question 30: In January 2017, installation costs of $6,000 on new machinery were charged to Maintenance and Repairs Expense. Other costs of this machinery of $30,000 were correctly recorded and have been depreciated using the straight-line method with an estimated life of 10 years and no salvage value. At December 31, 2018, it is decided that the machinery has a remaining useful life of 20 years, starting with January 1, 2018. What entries should be made in 2018 to correctly record transactions related to machinery, assuming the machinery has no salvage value? The books have not been closed for 2018 and depreciation expense has not yet been recorded for 2018.