Questions -
Q1. On February 2, 2011, MBH Inc. acquired 30% of the voting common stock of Construction Corporation as a long-term investment. Data from Construction Corporation's financial statements for the year ended December 31, 2011, include the following:
Net income $150,000
Dividends Paid 75,000
Required: Prepared any necessary journal entries for MBH at December 31, 2011, under the equity method of accounting for investments.
Q2. The following selected transactions relate to liabilities of Chicago Glass Corporation (Chicago) for 2011. Chicago's fiscal year ends on December 31. On January 15, Chicago received $7,000 from Henry Construction toward the purchase of $66,000 of plate glass to be delivered on February 6. On February 3, Chicago received $6,700 of refundable deposits relating to containers used to transport glass components. On February 6, Chicago delivered the plate glass to Henry Construction and received the balance of the purchase price. First quarter credit sales totaled $700,000. The state sales tax rate is 4%, and the local sales tax rate is 2%.
Required: Prepare journal entries for the above transactions.
Q3. On January 1, 2011, Mania Enterprises issued 12% bonds dated January 1, 2011, with a face amount of $20 million. The bonds mature in 2020 (10 years). For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31.
Required:
A. Determine the price of the bonds at January 1, 2011.
B. Prepare the journal entry to record the bond issuance by Mania on January 1, 2011.
C. Prepare the journal entry to record interest on June 30, 2011, using the effective interest method.
D. Prepare the journal entry to record interest on December 31, 2011, using the effective interest method.
Q4. Diablo Company leased a machine from Juniper Corporation on January 1, 2011. The machine has a fair value of $20,000,000. The lease agreement calls for four equal payments at the end of each year. The useful life of the machine was expected to be four years with no residual value. The appropriate interest rate for this lease is 10%.
Additional information:
PV of an ordinary annuity @ 10% for 4 periods 3.16987
PV of an annuity @ 10% for 4 periods 3.4869
Required:
A. Determined the amount of each lease payment.
B. Prepare the journal entry for Diablo Company at the inception of the lease.
C. Prepare the journal entry for the first lease payment.
D. Prepare the journal entry for the second lease payment.
Q5. Typical Corp. reported a deferred tax liability of $6,000,000 for the year ended December 31, 2010, when tax rate was 40%. The deferred tax liability was related to a temporary difference of $15,000,000 caused by an installment sale in 2010. The temporary difference is expected to reverse in 2012 when the income deferred from taxation will become taxable. There are no other temporary differences. Assume a new tax law passed in 2011 and the tax rate, which will remain at 40% through December 31, 2011, will become 48% for tax years beginning after December 31, 2011. Pretax accounting income and taxable income for the year 2011 is $30,000,000.
Required: Prepare a compound journal entry to record Typical's income tax expense for the year 2011. Show well-labeled computations.
Q6. Burrito Corporation has a defined benefit pension plan. Burrito received the following information for the current calendar year:
Projected benefit obligation
Balance, January 1 $150,000,000
Service cost 25,000,000
Interest Cost 15,000,000
Benefits paid (12,000,000)
Balance, December 31 $178,000,000
Plan assets
Balance, January 1 $90,000,000
Actual return on plan assets11,000,000
Contribution 23,000,000
Benefits paid (12,000,000)
Balance, December 31 $112,000,000
The expected long-term return on plan assets in 10%. There were no other relevant data for the year.
Required:
A. Determine Burrito's pension expense for the year.
B. Prepare the journal entries to record the pension expense and funding for the year.
Q7. The shareholders' equity of Tru Corporation includes $600,000 of $1 par common stock and $1,200,000 of 6% cumulative preferred stock. The board of directors of Tru declared cash dividends of $150,000 in 2011 after paying $60,000 cash dividends in each of 2010 and 2009.
Required: What is the amount of dividends common shareholders will receive in 2011?
Q8. On December 31, 2010, Jackson Company had 100,000 shares of common stock outstanding 30,000 shares of 7%, $50 par, cumulative preferred stock outstanding. On February 28, 2011, Jackson purchased 24,000 shares of common stock on the open market as treasury stock $35 per share. Jackson sold 6,000 treasury shares on September 30, 2011, for $37 per share. Net income for 2011 was $180,905. Also outstanding during the year were fully vested incentive stock options giving key personnel the option to buy 50,000 common shares at $40. The market price of the common shares averaged $39 during 2011.
Required: Compute Jackson's basic and diluted earnings per share 2011.
Q9. Lindy Company's auditor discovered two errors. No errors were corrected during 2010. The errors are described as follows: Merchandise costing $4,000 was sold to a customer for $9,000 on December 31, 2010, but it was recorded as a sale on January 2, 2011. The merchandise was properly excluded from the 2010 ending inventory. Assume the periodic inventory system is used.
A machine with a 5-year life was purchased on January 1, 2010. The machine cost $20,000 and has no expected salvage value. No depreciation was taken in 2010 or 2011. Assume the straight-line method for depreciation.
Required: Prepare appropriate journal entries (Assume the 2011 books haven't been closed). Ignore income taxes.
Q10. Partial balance sheets for Yarborough Company and additional information are found below.
Yarborough Company-Partial balance Sheets as of December 31
Assets 2011 2010
Equipment $100,000 $75,000
Accumulated depreciation (25,000) (20,000)
Inventory 40,000 35,000
Shareholders' equity
Common stock, $5 par $150,000 $100,000
Paid-in capital--excess of par 20,000 0
Retained earnings 40,000 30,000
Additional Information:
July1: Issued 10,000 shares of common stock for cash.
July1: Purchased new equipment for cash.
December 31: Paid cash dividends of $30,000.
Required: Prepare the investing activities section of the statement of cash flows for 2011.