Reference no: EM131405106

Q1. Windsor Corporation has outstanding 20,000 shares of $5 par value common stock. On August 1, 2017, Windsor reacquired 190 shares at $79 per share. On November 1, Windsor reissued the 190 shares at $70 per share. Windsor had no previous treasury stock transactions.

Prepare Windsor's journal entries to record these transactions using the cost method. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Q2. Bonita Mining Company declared, on April 20, a dividend of $490,000 payable on June 1. Of this amount, $146,000 is a return of capital.

Prepare the April 20 and June 1 entries for Bonita. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Q3. Crane Corporation is authorized to issue 47,000 shares of $5 par value common stock. During 2017, Crane took part in the following selected transactions.

1. Issued 4,800 shares of stock at $44 per share, less costs related to the issuance of the stock totaling $5,800.

2. Issued 1,100 shares of stock for land appraised at $47,000. The stock was actively traded on a national stock exchange at approximately $45 per share on the date of issuance.

3. Purchased 470 shares of treasury stock at $46 per share. The treasury shares purchased were issued in 2013 at $43 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.

(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Q4. For a recent 2-year period, the balance sheet of Windsor Company showed the following stockholders' equity data at December 31 (in millions).

	2017	2016
Additional paid-in capital	$920	$825
Common stock	651	639
Retained earnings	7,230	5,310
Treasury stock	1,596	930
Total stockholders' equity	$7,205	$5,844
Common stock shares  issued	217	213
Common stock shares authorized	500	500
Treasury stock shares	38	30

(a) Answer the following questions.

(1) What is the par value of the common stock?

(2) What is the cost per share of treasury stock at December 31, 2017, and at December 31, 2016?

(b) Prepare the stockholders' equity section at December 31, 2017. (Enter account name only and do not provide descriptive information.)

Q5. Marigold Corporation has 12.20 million shares of common stock issued and outstanding. On June 1, the board of directors voted an 81 cents per share cash dividend to stockholders of record as of June 14, payable June 30.

Prepare the journal entries for each of the dates above assuming the dividend represents a distribution of earnings. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

How would the entries differ if the dividend were a liquidating dividend? (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Q6. Monty Corporation's post-closing trial balance at December 31, 2017, is shown as follows.

MONTY CORPORATION POST-CLOSING TRIAL BALANCE DECEMBER 31, 2017
	Dr.	Cr.
Accounts payable		$330,700
Accounts receivable	$487,000
Accumulated depreciation-building		185,000
Additional paid-in capital in excess of par-common		1,239,000
From treasury stock		165,000
Allowance for doubtful accounts		30,000
Bonds payable		288,000
Buildings	1,469,000
Cash	200,000
Common stock ($1 par)		213,000
Dividends payable (preferred stock-cash)		4,300
Inventory	568,000
Land	385,000
Preferred stock ($50 par)		550,000
Prepaid expenses	40,000
Retained earnings		318,000
Treasury stock (common at cost)	174,000
Totals	$3,323,000	$3,323,000

At December 31, 2017, Monty had the following number of common and preferred shares.

	Common	Preferred
Authorized	639,000	66,000
Issued	213,000	11,000
Outstanding	204,000	11,000

The dividends on preferred stock are $4 cumulative. In addition, the preferred stock has a preference in liquidation of $50 per share.

Prepare the stockholders' equity section of Monty's balance sheet at December 31, 2017. (Enter account name only and do not provide descriptive information.)

Q7. The outstanding capital stock of Concord Corporation consists of 2,100 shares of $100 par value, 5% preferred, and 4,600 shares of $50 par value common.

Assuming that the company has retained earnings of $84,000, all of which is to be paid out in dividends, and that preferred dividends were not paid during the 2 years preceding the current year, state how much each class of stock should receive under each of the following conditions.

(a) The preferred stock is noncumulative and nonparticipating.

(b) The preferred stock is cumulative and nonparticipating.

(c) The preferred stock is cumulative and participating.

Q8. Sheridan Corporation had 318,000 shares of common stock outstanding on January 1, 2017. On May 1, Sheridan issued 32,700 shares.

(a) Compute the weighted-average number of shares outstanding if the 32,700 shares were issued for cash.

(b) Compute the weighted-average number of shares outstanding if the 32,700 shares were issued in a stock dividend.

Q9. On January 1, 2016, when its $30 par value common stock was selling for $80 per share, Shamrock Corp. issued $10,100,000 of 8% convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five shares of the corporation's common stock. The debentures were issued for $10,908,000. The present value of the bond payments at the time of issuance was $8,585,000, and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2017, the corporation's $30 par value common stock was split 2 for 1, and the conversion rate for the bonds was adjusted accordingly. On January 1, 2018, when the corporation's $15 par value common stock was selling for $135 per share, holders of 30% of the convertible debentures exercised their conversion options. The corporation uses the straight-line method for amortizing any bond discounts or premiums.

(a) Prepare the entry to record the original issuance of the convertible debentures. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

(b) Prepare the entry to record the exercise of the conversion option, using the book value method. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Q10. On November 1, 2017, Martinez Company adopted a stock-option plan that granted options to key executives to purchase 36,900 shares of the company's $11 par value common stock. The options were granted on January 2, 2018, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $40, and the fair value option-pricing model determines the total compensation expense to be $553,500.

All of the options were exercised during the year 2020: 24,600 on January 3 when the market price was $65, and 12,300 on May 1 when the market price was $75 a share.

Prepare journal entries relating to the stock option plan for the years 2018, 2019, and 2020. Assume that the employee performs services equally in 2018 and 2019.

Q11. Pearl Company issues 8,800 shares of restricted stock to its CFO, Mary Tokar, on January 1, 2017. The stock has a fair value of $440,000 on this date. The service period related to this restricted stock is 5 years. Vesting occurs if Tokar stays with the company until December 31, 2021. The par value of the stock is $10. At December 31, 2017, the fair value of the stock is $456,000.

(a) Prepare the journal entries to record the restricted stock on January 1, 2017 (the date of grant), and December 31, 2018.

(b) On July 25, 2021, Tokar leaves the company. Prepare the journal entry to account for this forfeiture.

Q12. Teal Inc. presented the following data.

Net income	$2,350,000
Preferred stock: 46,000 shares outstanding, $100 par, 8% cumulative, not convertible	4,600,000
Common stock: Shares outstanding 1/1	778,800
Issued for cash, 5/1	330,000
Acquired treasury stock for cash, 8/1 2-for-1 stock split, 10/1	153,600

Compute earnings per share.

Q13. The Waterway Corporation issued 10-year, $4,910,000 par, 7% callable convertible subordinated debentures on January 2, 2017. The bonds have a par value of $1,000, with interest payable annually. The current conversion ratio is 13:1, and in 2 years it will increase to 19:1. At the date of issue, the bonds were sold at 97. Bond discount is amortized on a straight-line basis. Waterway's effective tax was 40%. Net income in 2017 was $8,750,000, and the company had 2,175,000 shares outstanding during the entire year.

(a) Compute both basic and diluted earnings per share.

Q14. On April 1, 2018, West Company purchased $450,000 of 6.00% bonds for $467,750 plus accrued interest as an available-for-sale security. Interest is paid on July 1 and January 1 and the bonds mature on July 1, 2023.

Prepare the journal entry on April 1, 2018.

The bonds are sold on November 1, 2019 at 103 plus accrued interest. Amortization was recorded when interest was received by the straight-line method. Prepare all entries required to properly record the sale.

Q15. Fill in the dollar changes caused in the Investment account and Dividend Revenue or Investment Revenue account by each of the following transactions, assuming Crane Company uses (a) the fair value method and (b) the equity method for accounting for its investments in Hudson Company. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45). Do not leave any answer field blank. Enter 0 for amounts.)

	(a) Fair Value Method		(b) Equity Method
Transaction	Investment Account	Dividend Revenue	Investment Account	Dividend Revenue
1. At the beginning of Year 1, Crane bought 25% of Hudson's common stock at its book value. Total book value of all Hudson's common stock was $760,000 on this date.
2. During Year 1, Hudson reported $68,000 of net income and paid $34,000 of dividends.
3. During Year 2, Hudson reported $29 500 of net income and paid $20,000 of dividends.
4. During Year 3, Hudson reported a net loss of $10,000 and paid $3,600 of dividends.
5. Indicate the Year 3 ending balance in the Investment account, and cumulative totals for Years 1, 2, and 3 for dividend revenue and Investment revenue.

Q16. The following information is available for Irwin Company for 2018:

Net Income	$113,000
Realized gain on sale of available-for-sale debt securities	11,000
Unrealized holding gain arising during the period on available-for-sale debt securities	36,000
Reclassification adjustment for gains included in net income	8,500

(a) Determine other comprehensive income for 2018.

(b) The parts of this question must be completed in order. This part will be available when you complete the part above.

Q17. On January 2, 2018, Tylor Company issued a 4-year, $600,000 note at 8% fixed interest, interest payable semiannually. Tylor now wants to change the note to a variable rate note. As a result, on January 2, 2018, Tylor Company enters into an interest rate swap where it agrees to receive 8% fixed and pay LIBOR of 5.5% for the first 6 months on $600,000. At each 6-month period, the variable interest rate will be reset. The variable rate is reset to 6.7% on June 30, 2018.

Compute the net interest expense to be reported for this note and related swap transaction as of June 30, 2018.

Compute the net interest expense to be reported for this note and related swap transaction as of December 31, 2018.

Q18. Metlock Company purchased, on January 1, 2017, as an available-for-sale security, $74,000 of the 11%, 5-year bonds of Chester Corporation for $68,794, which provides an 13% return.

Prepare Metlock's journal entries for (a) the purchase of the investment, (b) the receipt of annual interest and discount amortization, and (c) the year-end fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.) The bonds have a year-end fair value of $70,300. (Round answers to 0 decimal places, e.g. 1,225. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Q19. Ayayai Corporation purchased 400 shares of Sherman Inc. common stock for $13,200 (Ayayai does not have significant influence). During the year, Sherman paid a cash dividend of $3.25 per share. At year-end, Sherman stock was selling for $35.50 per share.

Prepare Ayayai' journal entries to record (a) the purchase of the investment, (b) the dividends received, and (c) the fair value adjustment. (Assume a zero balance in the Fair Value Adjustment account.) (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Q20. Splish Corporation purchased for $282,000 a 30% interest in Murphy, Inc. This investment enables Splish to exert significant influence over Murphy. During the year, Murphy earned net income of $172,000 and paid dividends of $65,000.

Prepare Splish's journal entries related to this investment. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select No Entry" for the account titles and enter 0 for the amounts.)

Q21. Pronghorn Company invests $10,300,000 in 5% fixed rate corporate bonds on January 1, 2017. All the bonds are classified as available-for-sale and are purchased at par. At year-end, market interest rates have declined, and the fair value of the bonds is now $10,790,000. Interest is paid on January 1.

Prepare journal entries for Pronghorn Company to (a) record the transactions related to these bonds in 2017, assuming Pronghorn does not elect the fair option; and (b) record the transactions related to these bonds in 2017, assuming that Pronghorn Company elects the fair value option to account for these bonds. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Q22. Presented below are two independent cases related to available-for-sale debt investments.

	Case 1	Case 2
Amortized cost	$37,230	$91,300
Fair value	26,680	100,350
Expected credit losses	21,640	82,740

For each case, determine the amount of impairment loss, if any. (If no loss, please enter 0. Do not leave any fields blank.)

Q23. On January 1, 2017, Flounder Company purchased 12% bonds having a maturity value of $270,000, for $290,470.00. The bonds provide the bondholders with a 10% yield. They are dated January 1, 2017, and mature January 1, 2022, with interest receivable January 1 of each year. Flounder Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified in the held-to-maturity category.

(a) Prepare the journal entry at the date of the bond purchase. (Enter answers to 2 decimal places, e.g. 2,525.25. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

(b) The parts of this question must be completed in order. This part will be available when you complete the part above.

(c) The parts of this question must be completed in order. This part will be available when you complete the part above.

(d) The parts of this question must be completed in order. This part will be available when you complete the part above.

Q24. At December 31, 2017, the available-for-sale debt portfolio for Flint, Inc. is as follows.

Security	Cost	Fair Value	Unrealized Gain (Loss)
A	$28,875	$24,750	$(4,125)
B	20,625	23,100	2,475
C	37,950	42,075	4,125
Total	$87,450	$89,925	2,475
Previous fair value adjustment balance-Dr.			660
Fair value adjustment-Dr.			$1,815

On January 20, 2018, Flint, Inc. sold security A for $24,915. The sale proceeds are net of brokerage fees.

(a) Prepare the adjusting entry at December 31, 2017, to report the portfolio at fair value. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

(b) The parts of this question must be completed in order. This part will be available when you complete the part above.

(c)  The parts of this question must be completed in order. This part will be available when you complete the part above.

Q25. The following are two independent situations.

Situation 1 - Tamarisk Cosmetics acquired 10% of the 193,000 shares of common stock of Martinez Fashion at a total cost of $12 per share on March 18, 2017. On June 30, Martinez declared and paid $81,400 cash dividend to all stockholders. On December 31, Martinez reported net income of $110,100 for the year. At December 31, the market price of Martinez Fashion was $13 per share.

Situation 2 - Vaughn, Inc. obtained significant influence over Seles Corporation by buying 40% of Seles's 30,300 outstanding shares of common stock at a total cost of $8 per share on January 1, 2017. On June 15, Seles declared and paid cash dividends of $38,400. On December 31, Seles reported a net income of $90,700 for the year.

Prepare all necessary journal entries in 2017 for both situations. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Q26. Riverbed Corporation has municipal bonds classified as a held-to-maturity at December 31, 2017. These bonds have a par value of $876,000, an amortized cost of $876,000, and a fair value of $799,000. The company believes that impairment accounting is now appropriate for these bonds.

Prepare the journal entry to recognize the impairment. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

What is the new cost basis of the municipal bonds?

Given that the maturity value of the bonds is $876,000, should Riverbed Corporation amortize the difference between the carrying amount and the maturity value over the life of the bonds?

At December 31, 2018, the fair value of the municipal bonds is $838,000. Prepare the entry (if any) to record this information. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Q27. On August 15, 2016, Oriole Co. invested idle cash by purchasing a call option on Counting Crows Inc. common shares for $684. The notional value of the call option is 760 shares, and the option price is $76. The option expires on January 31, 2017. The following data are available with respect to the call option.

Date	Market Price of Counting Crows Shares	Time Value of Call Option
September 30,2016	$91 per share	$342
December 31,2016	$87 per share	124
January 15,2017	$89 per share	57

Prepare the journal entries for Oriole for the following dates.

(a) Investment in call option on Counting Crows shares on August 15, 2016.

(b) September 30, 2016-Oriole prepares financial statements.

(c) December 31, 2016-Oriole prepares financial statements.

(d) January 15, 2017-Oriole settles the call option on the Counting Crows shares.