Question 1) Landon 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 and the common stock has a market value of $25 per share.
Question 2) Treasury stock.
Camby Corporation's balance sheet reported the following:
Capital stock outstanding, 5,000 shares, par $30 per share $150,000
Paid-in capital in excess of par 80,000
Retained earnings 100,000
The following transactions occurred this year:
(a) Purchased 120 shares of capital stock to be held as treasury stock, paying $60 per share.
(b) Sold 90 of the shares of treasury stock at $65 per share.
(c) Sold the remaining shares of treasury stock at $50 per share.
Instructions: Prepare the journal entry for these transactions under the cost method of accounting for treasury stock.
Question 3) Weighted average shares outstanding.
On January 1, 2007, Yarrow Corporation had 1,000,000 shares of common stock outstanding. On March 1, the corporation issued 150,000 new shares to raise additional capital. On July 1, the corporation declared and issued a 2-for-1 stock split. On October 1, the corporation purchased on the market 600,000 of its own outstanding shares and retired them.
Instructions: Compute the weighted average number of shares to be used in computing earnings per share for 2007.
Question 4) Earnings Per Share. (Essay)
Define the following:
(a) The computation of earnings per common share
(b) Complex capital structure
(c) Basic earnings per share
(d) Diluted earnings per share
Question 5) Investment in debt securities at a discount.
On May 1, 2007, Gipson Corp. purchased $450,000 of 12% bonds, interest payable on January 1 and July 1, for $422,800 plus accrued interest. The bonds mature on January 1, 2013. Amortization is recorded when interest is received by the straight-line method (by months and round to the nearest dollar). (Assume bonds are available for sale.)
Instructions:
(a) Prepare the entry for May 1, 2007.
(b) The bonds are sold on August 1, 2008 for $425,000 plus accrued interest. Prepare all entries required to properly record the sale.
Question 6) Fair value and equity methods. (Essay)
Compare the fair value and equity methods of accounting for investments in stocks subsequent to acquisition.
Question 7. Deferred income taxes.
Nott Co. at the end of 2007, its first year of operations, prepared a reconciliation between pretax financial income and taxable income as follows:
Pretax financial income $ 420,000
Extra depreciation taken for tax purposes (1,050,000)
Estimated expenses deductible for taxes when paid 840,000
Taxable income $ 210,000
Use of the depreciable assets will result in taxable amounts of $350,000 in each of the next three years. The estimated litigation expenses of $840,000 will be deductible in 2010 when settlement is expected.
Instructions
(a) Prepare a schedule of future taxable and deductible amounts.
(b) Prepare the journal entry to record income tax expense, deferred taxes, and income taxes payable for 2007, assuming a tax rate of 40% for all years.
Question 8) Pension accounting terminology. (essay)
Briefly explain the following terms:
(a) Service cost
(b) Interest cost
(c) Prior service cost
(d) Vested benefits