Intermediate Accounting (Test 2) (computational)

Ziegler Corporation purchased 25,000 shares of common stock of the Sherman Corporation for $40 per share on January 2, 2008. Sherman Corporation had 100,000 shares of common stock outstanding during 2011, paid cash dividends of $60,000 during 2011, and reported net income of $200,000 for 2011. Ziegler Corporation should report revenue from investment for 2011 in the amount of a. $15,000. b. $35,000. c. $50,000. d. $55,000.

c $200,000 × (25,000 ÷ 100,000) = $50,000.

Chapter 17 (Q90)

c $30,000 (unrealized loss).

Blanco Company purchased 200 of the 1,000 outstanding shares of Darby Company's common stock for $300,000 on January 2, 2010. During 2010, Darby Company declared dividends of $50,000 and reported earnings for the year of $200,000. If Blanco Company uses the equity method of accounting for its investment in Darby Company, its Investment in Darby Company account at December 31, 2010 should be a. $290,000. b. $300,000. c. $330,000. d. $340,000

c $300,000 + ($200,000 × .2) - ($50,000 × .2) = $330,000.

Blanco Company purchased 200 of the 1,000 outstanding shares of Darby Company's common stock for $300,000 on January 2, 2010. During 2010, Darby Company declared dividends of $50,000 and reported earnings for the year of $200,000. If Blanco Company used the fair value method of accounting for its investment in Darby Company, its Investment in Darby Company account on December 31, 2010 should be a. $290,000. b. $330,000. c. $300,000. d. $340,000.

c $300,000, acquisition cost.

Brown Corporation earns $240,000 and pays cash dividends of $80,000 during 2010. Dexter Corporation owns 3,000 of the 10,000 outstanding shares of Brown. What amount should Dexter show in the investment account at December 31, 2010 if the beginning of the year balance in the account was $320,000? a. $392,000. b. $320,000. c. $368,000. d. $480,000.

c $320,000 + ($240,000 × .3) - ($80,000 × .3) = $368,000.

nstrument Corp. has the following investments which were held throughout 2010-2011: Market Value Cost 12/31/10 12/31/11 Trading $300k $400k $380k Available-for-sale 300k 320k 360k What amount would be reported as accumulated other comprehensive income related to investments in Instrument Corp.'s balance sheet at December 31, 2010? a. $40,000 gain. b. $60,000 gain. c. $20,000 gain. d. $120,000 gain.

c $320,000 - $300,000 = $20,000 gain.

Harrison Co. owns 20,000 of the 50,000 outstanding shares of Taylor, Inc. common stock. During 2011, Taylor earns $800,000 and pays cash dividends of $640,000. If the beginning balance in the investment account was $500,000, the balance at December 31, 2011 should be a. $820,000. b. $660,000. c. $564,000. d. $500,000.

c $500,000 + [($800,000 - $640,000) × (20,000 ÷ 50,000)] = $564,000.

Myers Co. acquired a 60% interest in Gannon Corp. on December 31, 2010 for $945,000. During 2011, Gannon had net income of $600,000 and paid cash dividends of $150,000. At December 31, 2011, the balance in the investment account should be a. $945,000. b. $1,305,000. c. $1,215,000. d. $1,395,000.

c. $945,000 + ($600,000 × .6) - ($150,000 × .6) = $1,215,000.

Richman Co. purchased $300,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2010, with interest payable on July 1 and January 1. The bonds sold for $312,474 at an effective interest rate of 7%. Using the effective interest method, Richman Co. decreased the Available-for-Sale Debt Securities account for the Carlin, Inc. bonds on July 1, 2010 and December 31, 2010 by the amortized premiums of $1,062 and $1,098, respectively. At December 31, 2010, the fair value of the Carlin, Inc. bonds was $318,000. What should Richman Co. report as other comprehensive income and as a separate component of stockholders' equity? a. $0 b. $2,160 c. $5,526 d. $7,686

d $318,000 - ($312,474 - $1,062 - $1,098) = $7,686.

On January 3, 2010, Moss Co. acquires $100,000 of Adam Company's 10-year, 10% bonds at a price of $106,418 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. Assuming that Moss Co. uses the effective-interest method, what is the amount of interest revenue that would be recognized in 2011 related to these bonds? a. $10,000 b. $10,642 c. $9,578 *d. $9,540

d ($106,418 × .09) - ($100,000 × .10) = ($422) ($106,418 - $422) × .09 = $9,540.

During 2010 Logic Company purchased 4,000 shares of Midi, Inc. for $30 per share. The investment was classified as a trading security. During the year Logic Company sold 1,000 shares of Midi, Inc. for $35 per share. At December 31, 2010 the market price of Midi, Inc.'s stock was $28 per share. What is the total amount of gain/(loss) that Logic Company will report in its income statement for the year ended December 31, 2010 related to its investment in Midi, Inc. stock? a. ($8,000) b. $5,000 c. ($3,000) d. ($1,000)

d [($35 - $30) × 1,000] - [($30 - $28) × 3,000] = ($1,000).

Chapter 17 (Q99-102)

99. c $195,000, acquisition cost. 100. b $225,000, acquisition cost. 101. b $135,000, acquisition cost. 102. b $202,500 + ($75,000 × .3) - ($30,000 × .3) = $216,000.

Chapter 15 (Q85)

A $1,550,000 - (3,000 X $28) - (3,000 X $35) + (1,800 X $30) + $450,000 = $1,865,000.

Fogel Co. has $5,000,000 of 8% convertible bonds outstanding. Each $1,000 bond is convertible into 30 shares of $30 par value common stock. The bonds pay interest on January 31 and July 31. On July 31, 2012, the holders of $1,600,000 bonds exercised the conversion privilege. On that date the market price of the bonds was 105 and the market price of the common stock was $36. The total unamortized bond premium at the date of conversion was $350,000. Fogel should record, as a result of this conversion, a a. credit of $272,000 to Paid-in Capital in Excess of Par. b. credit of $240,000 to Paid-in Capital in Excess of Par. c. credit of $112,000 to Premium on Bonds Payable. d. loss of $16,000.

A $1,600,000 + ($350,000 × .32) - (1,600 × 30 × $30) = $272,000.

Chapter 15 (Q104)

A $1,980,000 ÷ 180,000 = $11.00.

Chapter 15 (Q112)

A $140,000 + $80,000 + (240,000 - $5,000)/ 14,000 = $455 ÷ 14.

At the beginning of 2015, Flaherty Company had retained earnings of $350,000. During the year Flaherty reported net income of $100,000, sold treasury stock at a ―gain‖ of $36,000, declared a cash dividend of $60,000, and declared and issued a small stock dividend of 3,000 shares ($10 par value) when the fair value of the stock was $20 per share. The amount of retained earnings available for dividends at the end of 2015 was a. $330,000. b. $360,000. c. $366,000. d. $396,000.

A $350,000 + $100,000 - $60,000 - (3,000 X $20) = $330,000.

Chapter 15 (Q 71)

A $4,500,000 + $400,000 + $550,000 + $2,000,000 + $1,500,000 - $150,000 = $8,800,000.

Chpater 16 (Q73)

A $700,000 ÷ 2 = $350,000.

Chapter 15 (Q97)

A $95,000 - $15,000 - (1,500 X $6) = $71,000.

Morgan Corporation had two issues of securities outstanding: common stock and an 8% convertible bond issue in the face amount of $20,000,000. Interest payment dates of the bond issue are June 30th and December 31st. The conversion clause in the bond indenture entitles the bondholders to receive forty shares of $20 par value common stock in exchange for each $1,000 bond. On June 30, 2012, the holders of $3,000,000 face value bonds exercised the conversion privilege. The market price of the bonds on that date was $1,100 per bond and the market price of the common stock was $35. The total unamortized bond discount at the date of conversion was $1,250,000. In applying the book value method, what amount should Morgan credit to the account "paid-in capital in excess of par," as a result of this conversion? a. $412,500. b. $200,000. c. $1,800,000. d. $900,000.

A ($3,00,000 ÷ $1,000) × 40 × $20 = $2,400,000 (common stock) ($3,000,000 ÷ $20,000,000) × $1,250,000 = $187,500 (unamortized discount) $3,000,000 - $2,400,000 - $187,500 = $412,500.

Chapter 16 (Q77)

A ($33 - $20) × 80,000 × .75 = $780,000 $780,000 - $400,000 = $380,000.

On November 1, 2010, Horton Co. purchased Lopez, Inc., 10-year, 9%, bonds with a face value of $250,000, for $225,000. An additional $7,500 was paid for the accrued interest. Interest is payable semiannually on January 1 and July 1. The bonds mature on July 1, 2017. Horton uses the straight-line method of amortization. Ignoring income taxes, the amount reported in Horton's 2010 income statement as a result of Horton's available-forsale investment in Lopez was a. $4,375. b. $4,167. c. $3,750. d. $3,333.

A (250,000 x .045) + (25000 x 2/80) -7500 = 4375

Masterson Company has 420,000 shares of $10 par value common stock outstanding. During the year Masterson declared a 15% stock dividend when the market price of the stock was $36 per share. Three months later Masterson declared a $.60 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by a. $2,683,800 b. $2,268,000 c. $ 415,800 d. $ 396,000

A (420,000 X .15 X $36) + ($420,000 X 1.15 X $.60) = $2,683,800.

Colson Inc. declared a $320,000 cash dividend. It currently has 12,000 shares of 7%, $100 par value cumulative preferred stock outstanding. It is one year in arrears on its preferred stock. How much cash will Colson distribute to the common stockholders? a. $152,000. b. $168,000. c. $236,000. d. None.

A 12,000 X $100 X .07 = $84,000 $320,000 - ($84,000 X 2) = $152,000.

Grimm Company has 2,000,000 shares of common stock outstanding on December 31, 2012. An additional 150,000 shares of common stock were issued on July 1, 2013, and 300,000 more on October 1, 2013. On April 1, 2013, Grimm issued 6,000, $1,000 face value, 8% convertible bonds. Each bond is convertible into 40 shares of common stock. No bonds were converted into common stock in 2013. What is the number of shares to be used in computing basic earnings per share and diluted earnings per share, respectively, for the year ended December 31, 2013? a. 2,150,000 and 2,330,000 b. 2,150,000 and 2,150,000 c. 2,150,000 and 2,390,000 d. 2,450,000 and 2,630,000

A 2,000,000 + (150,000 × 6/12) + (300,000 × 3/12) = 2,150,000 2,150,000 + (6,000 × 40 × 9/12) = 2,330,000.

Anders, Inc., has 15,000 shares of 5%, $100 par value, cumulative preferred stock and 60,000 shares of $1 par value common stock outstanding at December 31, 2015. There were no dividends declared in 2013. The board of directors declares and pays a $135,000 dividend in 2014 and in 2015. What is the amount of dividends received by the common stockholders in 2015? a. $45,000 b. $75,000 c. $135,000 d. $0

A 5,000 X $100 X .05 = $75,000 ($135,000 X 2) - ($75,000 X 3) = $45,000.

Landis Co. purchased $500,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2011, with interest payable on July 1 and January 1. The bonds sold for $520,790 at an effective interest rate of 7%. Using the effective-interest method, Landis Co. decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2011 and December 31, 2011 by the amortized premiums of $1,770 and $1,830, respectively. At December 31, 2011, the fair value of the Ritter, Inc. bonds was $530,000. What should Landis Co. report as other comprehensive income and as a separate component of stockholders' equity? a. $12,810. b. $9,210. c. $3,600. d. No entry should be made.

A 530000 - (520790 - 1770 - 1830) = 12810

Hernandez Company has 560,000 shares of $10 par value common stock outstanding. During the year, Hernandez declared a 10% stock dividend when the market price of the stock was $30 per share. Four months later Hernandez declared a $.50 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by a. $1,988,000. b. $ 840,000. c. $ 308,000. d. $ 280,000.

A 560,000 X .10 × $30 = $1,680,000 $1,680,000 + (560,000 X 1.10 X $.50) = $1,988,000.

Chapter 17 (Q76)

A Dr. Held-to-Maturity Securities: 200k x 1.04 = 208k Dr. Interest Rev. 200000x .05 x 3/6 = 5000 Cr. 213k

At December 31, 2012 Rice Company had 300,000 shares of common stock and 10,000 shares of 6%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2012 or 2013. On January 30, 2014, prior to the issuance of its financial statements for the year ended December 31, 2013, Rice declared a 100% stock dividend on its common stock. Net income for 2013 was $1,140,000. In its 2013 financial statements, Rice's 2013 earnings per common share should be a. $1.80. b. $1.89. c. $3.60. d. $3.80

A [$1,140,000 - (10,000 × $100 × .06)] ÷ (300,000 × 2) = $1.80.

Mays, Inc. had net income for 2014 of $1,060,000 and earnings per share on common stock of $5. Included in the net income was $150,000 of bond interest expense related to its long-term debt. The income tax rate for 2014 was 30%. Dividends on preferred stock were $200,000. The payout ratio on common stock was 25%. What were the dividends on common stock in 2014? a. $215,000. b. $265,000. c. $241,250. d. $322,500.

A x/ (1060000 - 200000) = .25 x= 215K

On its December 31, 2010, balance sheet, Trump Co. reported its investment in availablefor-sale securities, which had cost $600,000, at fair value of $550,000. At December 31, 2011, the fair value of the securities was $585,000. What should Trump report on its 2011 income statement as a result of the increase in fair value of the investments in 2011? a. $0. b. Unrealized loss of $15,000. c. Realized gain of $35,000. d. Unrealized gain of $35,000.

A. $0 (available-for-sale securities).

Written, Inc. has outstanding 600,000 shares of $2 par common stock and 120,000 shares of no-par 8% preferred stock with a stated value of $5. The preferred stock is cumulative and nonparticipating. Dividends have been paid in every year except the past two years and the current year. Assuming that $366,000 will be distributed, and the preferred stock is also participating, how much will the common stockholders receive? a. $222,000. b. $180,000. c. $186,000. d. $ 96,000.

B 8% X $1,200,000 = $96,000 (current year) 7%* X $1,200,000 = 84,000 (participating) $180,000 *$600,000 X 8% X 3 =$ 144,000 (preferred dividends) $1,200,000 8% = 96,000 (common current dividends) $240,000 $366,000 - $240,000 —————————— = 7%. $1,200,000 + $600,000

Litke Corporation issued at a premium of $5,000 a $100,000 bond issue convertible into 2,000 shares of common stock (par value $25). At the time of the conversion, the unamortized premium is $2,000, the market value of the bonds is $110,000, and the stock is quoted on the market at $60 per share. If the bonds are converted into common, what is the amount of paid-in capital in excess of par to be recorded on the conversion of the bonds? a. $55,000 b. $52,000 c. $62,000 d. $70,000

B $100,000 + $2,000 - (2,000 × $25) = $52,000.

Chapter 15 (Q113)

B $15,000 ÷ ($130,000 - $30,000) = 15.0%.

On January 2, 2013, Mize Co. issued at par $300,000 of 9% convertible bonds. Each $1,000 bond is convertible into 60 shares. No bonds were converted during 2013. Mize had 100,000 shares of common stock outstanding during 2013. Mize 's 2013 net income was $160,000 and the income tax rate was 30%. Mize's diluted earnings per share for 2013 would be (rounded to the nearest penny) a. $1.36. b. $1.52. c. $1.60. d. $1.79.

B $160,000 + ($300,000 × .09 × .7) / 100,000 + [($300,000 ÷ $1,000) × 60)] = 1.52

Chapter 16 (Q64)

B $2,400 / 2 = $1,200.

Chapter 15 (Q114)

B $2,400,000 ÷ 150,000 = $16.00.

Chapter 16 (Q61)

B $2,700 / 3 = $900.

Chapter 16 (47)

B $234,000 ÷ 117 = $2,000/month $234,000 - [($2,000 × 3) + ($2,000 × 6] × 1200K/6000K = $43,200

Chapter 16 (Q76)

B $30 - $20) × 80,000 × .5 = $400,000 $400,000 - $360,000 = $40,000.

Written, Inc. has outstanding 600,000 shares of $2 par common stock and 120,000 shares of no-par 8% preferred stock with a stated value of $5. The preferred stock is cumulative and nonparticipating. Dividends have been paid in every year except the past two years and the current year. Assuming that $300,000 will be distributed as a dividend in the current year, how much will the common stockholders receive? a. Zero. b. $156,000. c. $204,000. d. $252,000.

B $300,000 - (120,000 X $5 X .08 X 3) = $156,000.

Chapter 16 (Q75)

B $38 - $20) × 80,000 × .25 = $360,000.

At December 31, 2012, Sager Co. had 1,200,000 shares of common stock outstanding. In addition, Sager had 450,000 shares of preferred stock which were convertible into 750,000 shares of common stock. During 2013, Sager paid $750,000 cash dividends on the common stock and $500,000 cash dividends on the preferred stock. Net income for 2013 was $4,250,000 and the income tax rate was 40%. The diluted earnings per share for 2013 is (rounded to the nearest penny) a. $1.55. b. $2.18. c. $3.14. d. $3.55.

B $4,250,000/1,200,000 + 750,000 = 2.18

Chapter 15 (Q 72)

B $4,500,000 + $550,000 = $5,050,000.

Vernon Corporation offered detachable 5-year warrants to buy one share of common stock (par value $5) at $20 (at a time when the stock was selling for $32). The price paid for 4,000, $1,000 bonds with the warrants attached was $410,000. The market price of the Vernon bonds without the warrants was $360,000, and the market price of the warrants without the bonds was $40,000. What amount should be allocated to the warrants? a. $40,000 b. $41,000 c. $48,000 d. $50,000

B $40,000 ÷ ($40,000 + $360,000)] × $410,000 = $41,000.

Chapter 16(Q125)

B $400,000 + ($2,400,000 × .06 × .7) / 150,000 + 75,000 + 30,000 = 1.96

On December 1, 2012, Lester Company issued at 103, four hundred of its 9%, $1,000 bonds. Attached to each bond was one detachable stock warrant entitling the holder to purchase 10 shares of Lester's common stock. On December 1, 2012, the market value of the bonds, without the stock warrants, was 95, and the market value of each stock purchase warrant was $50. The amount of the proceeds from the issuance that should be accounted for as the initial carrying value of the bonds payable would be a. $387,280. b. $391,400. c. $400,000. d. $412,000.

B $400,000 × .95) + (400 × $50) = $400,000; $400,000 × 1.03 = $412,000 $380,000/$400,000 x 412000 = 391400

At December 31, 2012, Tatum Company had 2,000,000 shares of common stock outstanding. On January 1, 2013, Tatum issued 500,000 shares of preferred stock which were convertible into 1,000,000 shares of common stock. During 2013, Tatum declared and paid $1,800,000 cash dividends on the common stock and $600,000 cash dividends on the preferred stock. Net income for the year ended December 31, 2013, was $6,000,000. Assuming an income tax rate of 30%, what should be diluted earnings per share for the year ended December 31, 2013? (Round to the nearest penny.) a. $1.80 b. $2.00 c. $3.00 d. $2.50

B $6,000,000 / 2,000,000 + 1,000,000 =2.00

On July 1, 2012, an interest payment date, $80,000 of Parks Co. bonds were converted into 1,600 shares of Parks Co. common stock each having a par value of $45 and a market value of $54. There is $3,200 unamortized discount on the bonds. Using the book value method, Parks would record a. no change in paid-in capital in excess of par. b. a $4,800 increase in paid-in capital in excess of par. c. a $9,600 increase in paid-in capital in excess of par. d. a $6,400 increase in paid-in capital in excess of par.

B $80,000 - (1,600 × $45) - $3,200 = $4,800.

On June 30, 2012, Yang Corporation granted compensatory stock options for 30,000 shares of its $24 par value common stock to certain of its key employees. The market price of the common stock on that date was $31 per share and the option price was $28. Using a fair value option pricing model, total compensation expense is determined to be $96,000. The options are exercisable beginning January 1, 2014, providing those key employees are still in the employ of the company at the time the options are exercised. The options expire on June 30, 2015. On January 4, 2014, when the market price of the stock was $36 per share, all options for the 30,000 shares were exercised. The service period is for two years beginning January 1, 2012. Using the fair value method, what should be the amount of compensation expense recorded by Yang Corporation for these options on December 31, 2012? a. $96,000 b. $48,000 c. $22,500 d. $0

B $96,000 / 2 = $48,000.

On January 2, 2013, Worth Co. issued at par $1,000,000 of 7% convertible bonds. Each $1,000 bond is convertible into 20 shares of common stock. No bonds were converted during 2013. Worth had 200,000 shares of common stock outstanding during 2013. Worth's 2013 net income was $300,000 and the income tax rate was 30%. Worth's diluted earnings per share for 2013 would be (rounded to the nearest penny): a. $1.74. b. $1.59. c. $1.50. d. $1.68.

B ($1,000,000 / $1,000) X 20 = 20,000 $1,000,000 X .07 X (1 - .30) = $49,000 ($300,000 + $49,000) / (200,000 + 20,000) = $1.59.

On January 2, 2012, Perez Co. issued at par $10,000 of 8% bonds convertible in total into 1,000 shares of Perez's common stock. No bonds were converted during 2012. Throughout 2012, Perez had 1,000 shares of common stock outstanding. Perez's 2012 net income was $4,000, and its income tax rate is 30%. No potentially dilutive securities other than the convertible bonds were outstanding during 2012. Perez's diluted earnings per share for 2012 would be (rounded to the nearest penny) a. $2.00. b. $2.28. c. $2.40. d. $4.56.

B ($4,000 + ($10,000 × .08 × .70))/ 1000+1000 = 2.28

On January 1, 2013, Gridley Corporation had 187,500 shares of its $2 par value common stock outstanding. On March 1, Gridley sold an additional 375,000 shares on the open market at $20 per share. Gridley issued a 20% stock dividend on May 1. On August 1, Gridley purchased 210,000 shares and immediately retired the stock. On November 1, 300,000 shares were sold for $25 per share. What is the weighted-average number of shares outstanding for 2013? a. 765,000 b. 562,500 c. 358,333 d. 258,333

B (187,500 × 2 × 1.20) + (562,500 × 2 × 1.20) + (675,000 × 3) + (465,000 × 3) + (765,000 × 2)] ÷ 12 = 562,500.

Patton Company purchased $400,000 of 10% bonds of Scott Co. on January 1, 2011, paying $376,100. The bonds mature January 1, 2021; interest is payable each July 1 and January 1. The discount of $23,900 provides an effective yield of 11%. Patton Company uses the effectiveinterest method and plans to hold these bonds to maturity For the year ended December 31, 2011, Patton Company should report interest revenue from the Scott Co. bonds of: a. $42,392. b. $41,409. c. $41,368. d. $40,000.

B (376100 x .055) =20686 376100 + 686 x .055 = (20723) = 20723 + 20686 = 41409

Kern Company purchased bonds with a face amount of $400,000 between interest payment dates. Kern purchased the bonds at 102, paid brokerage costs of $6,000, and paid accrued interest for three months of $10,000. The amount to record as the cost of this long-term investment in bonds is a. $424,000. b. $414,000. c. $408,000. d. $400,000.

B (400k x 1.02) = 6k = 414k

On June 30, 2012, Norman Corporation granted compensatory stock options for 40,000 shares of its $20 par value common stock to certain of its key employees. The market price of the common stock on that date was $36 per share and the option price was $30. The Black-Scholes option pricing model determines total compensation expense to be $480,000. The options are exercisable beginning January 1, 2013, provided those key employees are still in Norman's employ at the time the options are exercised. The options expire on June 30, 2014. On January 4, 2013, when the market price of the stock was $42 per share, all 40,000 options were exercised. What should be the amount of compensation expense recorded by Norman Corporation for the calendar year 2012 using the fair value method? a. $0. b. $192,000. c. $240,000. d. $480,000.

B (480k x (12/30) = 192k

Winger Corporation owned 600,000 shares of Fegan Corporation stock. On December 31, 2014, when Winger's account ―Equity Investments (Fegan Corporation‖) had a carrying value of $5 per share, Winger distributed these shares to its stockholders as a dividend. Winger originally paid $8 for each share. Fegan has 2,000,000 shares issued and outstanding, which are traded on a national stock exchange. The quoted market price for a Fegan share was $7 on the declaration date and $9 on the distribution date. What would be the reduction in Winger's stockholders' equity as a result of the above transactions? a. $2,400,000. b. $3,000,000. c. $4,800,000. d. $5,400,000.

B (600,000 X $7) - [($7 - $5) X 600,000] = $3,000,000.

Manning Company issued 10,000 shares of its $5 par value common stock having a fair value of $25 per share and 15,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $530,000. How much of the proceeds would be allocated to the common stock? a. $250,000 b. $240,909 c. $289,091 d. $281,563

B 10,000 X $25) + (15,000 X $20) = $550,000 ($250,000 ÷ $550,000) X $530,000 = $240,909.

On January 1, 2014, Culver Corporation had 110,000 shares of its $5 par value common stock outstanding. On June 1, the corporation acquired 10,000 shares of stock to be held in the treasury. On December 1, when the market price of the stock was $10, the corporation declared a 15% stock dividend to be issued to stockholders of record on December 16, 2014. What was the impact of the 15% stock dividend on the balance of the retained earnings account? a. $937,500 decrease b. $150,000 decrease c. $165,000 decrease d. No effect

B 100,000 X .15 X $10 = $150,000

Chapter 15 (Q99)

B 120,000 X .15 X $30 = $540,000.

Chapter 15 (Q98)

B 160,000 X .10 X $70 = $1,120,000.

Yoder, Incorporated, has 4,200,000 shares of common stock outstanding on December 31, 2012. An additional 800,000 shares of common stock were issued on April 1, 2013, and 400,000 more on July 1, 2013. On October 1, 2013, Yoder issued 20,000, $1,000 face value, 8% convertible bonds. Each bond is convertible into 20 shares of common stock. No bonds were converted into common stock in 2013. What is the number of shares to be used in computing basic earnings per share and diluted earnings per share, respectively? a. 5,000,000 and 5,000,000 b. 5,000,000 and 5,100,000 c. 5,000,000 and 5,400,000 d. 5,400,000 and 6,200,000

B 4,200,000 + (800,000 × 9/12) + (400,000 × 6/12) = 5,000,000 (BEPS) 5,000,000 + (20,000 × 20 × 3/12) = 5,100,000 (DEPS).

Nolte Co. has 4,800,000 shares of common stock outstanding on December 31, 2012. An additional 200,000 shares are issued on April 1, 2013, and 480,000 more on September 1. On October 1, Nolte issued $6,000,000 of 9% convertible bonds. Each $1,000 bond is convertible into 40 shares of common stock. No bonds have been converted. The number of shares to be used in computing basic earnings per share and diluted earnings per share on December 31, 2013 is a. 5,110,000 and 5,110,000. b. 5,110,000 and 5,170,000. c. 5,110,000 and 5,350,000. d. 5,880,000 and 5,320,000.

B 4,800,000 + (200,000 × 9/12) + (480,000 × 4/12) = 5,110,000. 5,110,000 + [($6,000,000 ÷ $1,000) × 40 × 3/12] = 5,170,000.

Gannon Company acquired 10,000 shares of its own common stock at $20 per share on February 5, 2014, and sold 5,000 of these shares at $27 per share on August 9, 2015. The fair value of Gannon's common stock was $24 per share at December 31, 2014, and $25 per share at December 31, 2015. The cost method is used to record treasury stock transactions. What account(s) should Gannon credit in 2015 to record the sale of 5,000 shares? a. Treasury Stock for $135,000. b. Treasury Stock for $100,000 and Paid-in Capital from Treasury Stock for $35,000. c. Treasury Stock for $100,000 and Retained Earnings for $35,000. d. Treasury Stock for $120,000 and Retained Earnings for $15,000.

B 5,000 X $20 = $100,000; 5,000 X $7 = $35,000.

Chapter 16 (Q60)

B 500 x 20 x $2 = $20,000 ($20,000 / $500,000) x $515,000 = $20,600.

Chapter 16 (Q56)

B 500000 - (480k/500k x 515k) = 5600

On October 1, 2010, Renfro Co. purchased to hold to maturity, 1,000, $1,000, 9% bonds for $990,000 which includes $15,000 accrued interest. The bonds, which mature on February 1, 2019, pay interest semiannually on February 1 and August 1. Renfro uses the straight-line method of amortization. The bonds should be reported in the December 31, 2010 balance sheet at a carrying value of a. $975,000. b. $975,750. c. $990,000. d. $990,250.

B 632,000 + (25000 x 3/100) = 975750

Milo Co. had 800,000 shares of common stock outstanding on January 1, issued 126,000 shares on May 1, purchased 63,000 shares of treasury stock on September 1, and issued 54,000 shares on November 1. The weighted average shares outstanding for the year is a. 851,000. b. 872,000. c. 893,000. d. 914,000.

B 800,000 + (126,000 × 8/12) - (63,000 × 4/12) + (54,000 × 2/12) = 872,000.

Chapter 16 (48)

B Bonds issued at a discount, market rate > coupon rate.

Chapter 16 (Q57)

B Dr. Cash: 24,000 × $15 = $360,000 Dr. Paid-in Capital—Stock Warrants: $150,000 × 24/60 = $60,000 Cr. Common Stock: 24,000 × $10 = $240,000 Cr. Paid-in Capital in Excess of Par: ($5 + $2.50) × 24,000 = $180,000

Kasravi Co. had net income for 2013 of $400,000. The average number of shares outstanding for the period was 200,000 shares. The average number of shares under outstanding options, at an option price of $30 per share is 12,000 shares. The average market price of the common stock during the year was $36. What should Kasravi Co. report for diluted earnings per share for the year ended 2013? a. $2.00 b. $1.98 c. $1.90 d. $1.89

B [($36 - $30) / $36] X 12,000 = 2,000 $400,000 / (200,000 + 2,000) = $1.98.

Glavine Company issues 6,000 shares of its $5 par value common stock having a fair value of $25 per share and 9,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $297,000. The proceeds allocated to the common stock is a. $118,800 b. $135,000 c. $150,000 d. $162,000

B [(6,000 X $25) ÷ [(6,000 X $25) + (9,000 X $20)]] X $297,000 = $135,000.

Chapter 17 (Q110)

B. $15,000 + $35,000 - $10,000 = $40,000

Tracy Co. owns 4,000 of the 10,000 outstanding shares of Penn Corp. common stock. During 2010, Penn earns $120,000 and pays cash dividends of $40,000. If the beginning balance in the investment account was $240,000, the balance at December 31, 2010 should be a. $240,000. b. $272,000. c. $288,000. d. $320,000.

B. $240,000 + ($120,000 × .4) - ($40,000 × .4) = $272,000.

Chapter 15 (Q110)

B. $35,000 -(.04X$350,000)/ ((60K +75K) +(75K+90K))/2

Mann Co. has outstanding 80,000 shares of 8% preferred stock with a $10 par value and 150,000 shares of $3 par value common stock. Dividends have been paid every year except last year and the current year. If the preferred stock is cumulative and nonparticipating and $400,000 is distributed, the common stockholders will receive a. $0. b. $272,000. c. $336,000. d. $400,000.

B. $400,000 - ($800,000 X 8% × 2) = $272,000.

On December 31, 2012, Houser Company granted some of its executives options to purchase 75,000 shares of the company's $50 par common stock at an option price of $60 per share. The Black-Scholes option pricing model determines total compensation expense to be $1,500,000. The options become exercisable on January 1, 2013, and represent compensation for executives' past and future services over a three-year period beginning January 1, 2013. What is the impact on Houser's total stockholders' equity for the year ended December 31, 2012, as a result of this transaction under the fair value method? a. $1,500,000 decrease b. $500,000 decrease c. $0 d. $500,000 increase

C

Yoder, Inc. has 150,000 shares of $10 par value common stock and 75,000 shares of $10 par value, 6%, cumulative, participating preferred stock outstanding. Dividends on the preferred stock are one year in arrears. Assuming that Yoder wishes to distribute $405,000 as dividends, the common stockholders will receive a. $ 90,000. b. $165,000. c. $240,000. d. $315,000.

C $1,500,000 X 6% = $90,000 (current year) $1,500,000 X 10%*= 150,000 (participating) $240,000 *$405,000 - $90,000 - ($750,000 X 6% × 2) = $225,000 $225,000 /$2,250,000 = 10%

Hill Corp. had 600,000 shares of common stock outstanding on January 1, issued 900,000 shares on July 1, and had income applicable to common stock of $1,680,000 for the year ending December 31, 2012. Earnings per share of common stock for 2012 would be a. $2.80. b. $1.33. c. $1.60. d. $1.87.

C $1,680,000 / (600K + 900K X (6/12)) = 1.6

Chapter 15 (Q103)

C $10,000 ÷ ($83,000 - $15,000) = 14.7%.

Chapter 16 (Q68)

C $15,000 ÷ 3 = $5,000

Chapter 16 (Q62)

C $2,700 / 2 = 1,350

At December 31, 2012, Kifer Company had 600,000 shares of common stock outstanding. On October 1, 2013, an additional 120,000 shares of common stock were issued. In addition, Kifer had $10,000,000 of 6% convertible bonds outstanding at December 31, 2012, which are convertible into 270,000 shares of common stock. No bonds were converted into common stock in 2013. The net income for the year ended December 31, 2013, was $3,000,000. Assuming the income tax rate was 30%, the diluted earnings per share for the year ended December 31, 2013, should be (rounded to the nearest penny) a. $5.43. b. $4.00. c. $3.80. d. $3.33.

C $3,000,000 + ($10,000,000 × .06 × .7) / (600,000 + (120,000 ×3/12) + 270000 = 3.8

At December 31, 2012, Emley Company had 1,200,000 shares of common stock outstanding. On September 1, 2013, an additional 400,000 shares of common stock were issued. In addition, Emley had $8,000,000 of 6% convertible bonds outstanding at December 31, 2012, which are convertible into 800,000 shares of common stock. No bonds were converted into common stock in 2013. The net income for the year ended December 31, 2013, was $3,000,000. Assuming the income tax rate was 30%, what should be the diluted earnings per share for the year ended December 31, 2013, rounded to the nearest penny? a. $1.41 b. $2.25 c. $1.56 d. $1.63

C $3,000,000 + ($8,000,000 × .06 × .7)/ 1,200,000 + (400,000 X 4/12) + 800,000 = 1.56

Weiser Corp. on January 1, 2009, granted stock options for 40,000 shares of its $10 par value common stock to its key employees. The market price of the common stock on that date was $23 per share and the option price was $20. The Black-Scholes option pricing model determines total compensation expense to be $360,000. The options are exercisable beginning January 1, 2012, provided those key employees are still in Weiser's employ at the time the options are exercised. The options expire on January 1, 2013. On January 1, 2012, when the market price of the stock was $29 per share, all 40,000 options were exercised. The amount of compensation expense Weiser should record for 2009 under the fair value method is a. $0. b. $60,000. c. $120,000. d. $180,000

C $360,000 ÷ 3 = $120,000/year.

Chapter 16 (Q124)

C $400,000 - (15,000 × $2.00) / 150K = 2.47

On December 31, 2012, Kessler Company granted some of its executives options to purchase 75,000 shares of the company's $10 par common stock at an option price of $50 per share. The options become exercisable on January 1, 2013, and represent compensation for executives' services over a three-year period beginning January 1, 2013. The Black-Scholes option pricing model determines total compensation expense to be $450,000. At December 31, 2013, none of the executives had exercised their options. What is the impact on Kessler's net income for the year ended December 31, 2013 as a result of this transaction under the fair value method? a. $150,000 increase b. $0 c. $150,000 decrease d. $450,000 decrease

C $450,000 ÷ 3 = $150,000.

Chapter 15 (Q84)

C $600,000 + (3,600 X $5) - (2,400 X $4) = $608,400.

Chapter 15 (Q82)

C $800,000 + (2,000 X $5) - (500 X $10) = $805,000.

Chapter 15 (Q107)

C $87,000 - $10,000) ÷ [($1,000,000 + $1,200,000)/2] = 7.0%.

Lerner Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,500,000 of 10% convertible bonds outstanding during 2013. The preferred stock is convertible into 40,000 shares of common stock. During 2013, Lerner paid dividends of $1.35 per share on the common stock and $4.50 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2013 was $900,000 and the income tax rate was 30%. Diluted earnings per share for 2013 is (rounded to the nearest penny) a. $3.21. b. $3.37. c. $3.53. d. $3.69.

C $900,000 + ($1,500,000 × .10 × .7)/ 200K + 45K + 40K = 3.53

On December 31, 2012, Gonzalez Company granted some of its executives options to purchase 120,000 shares of the company's $10 par common stock at an option price of $50 per share. The Black-Scholes option pricing model determines total compensation expense to be $900,000. The options become exercisable on January 1, 2013, and represent compensation for executives' services over a three-year period beginning January 1, 2013. At December 31, 2013 none of the executives had exercised their options. What is the impact on Gonzalez's net income for the year ended December 31, 2013 as a result of this transaction under the fair value method? a. $300,000 increase. b. $900,000 decrease. c. $300,000 decrease. d. $0.

C $900,000 / 3 = $300,000 decrease.

Chapter 16 (Q59)

C ($1,000,000 x .96) + (1,000 x 20 x $2) = $1,000,000 ($480,000 / $1,000,000) x ($1,000,000 x 1.03) = $988,800 $1,000,000 - $988,800 = $11,200.

On March 1, 2012, Ruiz Corporation issued $1,000,000 of 8% nonconvertible bonds at 104, which are due on February 28, 2032. In addition, each $1,000 bond was issued with 25 detachable stock warrants, each of which entitled the bondholder to purchase for $50 one share of Ruiz common stock, par value $25. The bonds without the warrants would normally sell at 95. On March 1, 2012, the fair value of Ruiz's common stock was $40 per share and the fair value of the warrants was $2.00. What amount should Ruiz record on March 1, 2010 as paid-in capital from stock warrants? a. $36,800 b. $42,600 c. $52,600 d. $50,000

C ($1,000,000 × .95) + (1,000 × 25 × $2) = $1,000,000; $1,000,000 × 1.04 = $1,040,000 50000/1000000 x 1040000 = 52600

Chapter 15 (Q108)

C ($5,000) ÷ ($87,000 - $10,000) = 5.7%

Chapter 16 (Q55)

C ($500,000 × .96) + (10,000 × $2) = $500,000 $500,000 × 1.03 = $515,000 20k/500k x 515k = 20600

During 2012, Gordon Company issued at 104 five hundred, $1,000 bonds due in ten years. One detachable stock warrant entitling the holder to purchase 15 shares of Gordon's common stock was attached to each bond. At the date of issuance, the market value of the bonds, without the stock warrants, was quoted at 96. The market value of each detachable warrant was quoted at $40. What amount, if any, of the proceeds from the issuance should be accounted for as part of Gordon's stockholders' equity? a. $0 b. $20,000 c. $20,800 d. $19,760

C ($500,000 × .96) + (500 × $40) = $500,000; $500,000 × 1.04 = $520,000 20k/500k x 520k = 20800

Chapter 16 (46)

C ($6,000,000 - $5,766,000) ÷ 117 = $2,000/month ($6,000,000 × .09 × 3/12) + ($2,000 × 3) = $141,000.

Chapter 15 (Q111)

C ($60,000-$100,000 X .05)($140,000+$80,000+$240,000-$5,000) +$90,000+$70,000+$215,000)/2 = $55 ÷ 415.

Chapter 15 (Q90)

C ($90,000 ÷ $10) X $28 = $252,000 [$28 - ($90,000 ÷ 10,000)] X 9,000 = $171,000 $252,000 - $171,000 = $81,000.

Fultz Company had 300,000 shares of common stock issued and outstanding at December 31, 2012. During 2013, no additional common stock was issued. On January 1, 2013, Fultz issued 400,000 shares of nonconvertible preferred stock. During 2013, Fultz declared and paid $210,000 cash dividends on the common stock and $175,000 on the nonconvertible preferred stock. Net income for the year ended December 31, 2013, was $1,120,000. What should be Fultz's 2013 earnings per common share, rounded to the nearest penny? a. $1.35 b. $2.45 c. $3.15 d. $3.73

C (1120000 - 175K) / 300K = 3.15

Chapter 16 (Q54)

C (3,000 × $1,008) + (6,000 × $21) = $3,150,000 3024000/3150000 x 3180000 = 3052800, bonds: 3000000 Premium: $52,800 126k/3150k x 3180k = 127.2k

Chapter 15 (Q96)

C (50,000 X $50) + $2,500,000 = $5,000,000.

Wheeler Company issued 5,000 shares of its $5 par value common stock having a fair value of $25 per share and 7,500 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $264,000. The proceeds allocated to the preferred stock is a. $158,400 b. $150,000 c. $144,000 d. $120,000

C (7,500 X $20) ÷ [(5,000 X $25) + (7,500 X $20)]] X $264,000 = $144,000.

At December 31, 2012, Hancock Company had 500,000 shares of common stock issued and outstanding, 400,000 of which had been issued and outstanding throughout the year and 100,000 of which were issued on October 1, 2012. Net income for the year ended December 31, 2012, was $1,530,000. What should be Hancock's 2012 earnings per common share, rounded to the nearest penny? a. $3.03 b. $3.82 c. $3.60 d. $3.40

C 1530000/ (400K + (100K X (3/12)) = 3.6

Grant, Inc. had 50,000 shares of treasury stock ($10 par value) at December 31, 2012, which it acquired at $11 per share. On June 4, 2013, Grant issued 25,000 treasury shares to employees who exercised options under Grant's employee stock option plan. The market value per share was $13 at December 31, 2012, $15 at June 4, 2013, and $18 at December 31, 2013. The stock options had been granted for $12 per share. The cost method is used. What is the balance of the treasury stock on Grant's balance sheet at December 31, 2013? a. $175,000. b. $225,000. c. $275,000. d. $300,000.

C 25,000 × $11 = $275,000.

Norton Company issues 4,000 shares of its $5 par value common stock having a fair value of $25 per share and 6,000 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $210,000. What amount of the proceeds should be allocated to the preferred stock? a. $171,818 b. $131,250 c. $114,545 d. $95,454

C 4,000 X $25) + (6,000 X $20) = $220,000 ($120,000 ÷ $220,000) X $210,000 = $114,545.

Luther Inc., has 4,000 shares of 6%, $50 par value, cumulative preferred stock and 100,000 shares of $1 par value common stock outstanding at December 31, 2015, and December 31, 2014. The board of directors declared and paid a $10,000 dividend in 2014. In 2015, $48,000 of dividends are declared and paid. What are the dividends received by the preferred stockholders in 2015? a. $34,000 b. $24,000 c. $14,000 d. $12,000

C 4,000 X $50 X .06 = $12,000 ($12,000 - $10,000) + $12,000 = $14,000.

On December 1, 2014, Abel Corporation exchanged 40,000 shares of its $10 par value common stock held in treasury for a used machine. The treasury shares were acquired by Abel at a cost of $40 per share, and are accounted for under the cost method. On the date of the exchange, the common stock had a fair value of $55 per share (the shares were originally issued at $30 per share). As a result of this exchange, Abel's total stockholders' equity will increase by a. $ 400,000. b. $1,600,000. c. $2,200,000. d. $1,800,000.

C 40,000 X $55 = $2,200,000.

Warrants exercisable at $20 each to obtain 50,000 shares of common stock were outstanding during a period when the average market price of the common stock was $25. Application of the treasury stock method for the assumed exercise of these warrants in computing diluted earnings per share will increase the weighted average number of outstanding shares by a. 50,000. b. 40,000. c. 10,000. d. 12,500.

C 50,000 × $20 ÷ $25 = 40,000 50,000 - 40,000 = 10,000.

Landis Co. purchased $500,000 of 8%, 5-year bonds from Ritter, Inc. on January 1, 2011, with interest payable on July 1 and January 1. The bonds sold for $520,790 at an effective interest rate of 7%. Using the effective-interest method, Landis Co. decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2011 and December 31, 2011 by the amortized premiums of $1,770 and $1,830, respectively. At April 1, 2012, Landis Co. sold the Ritter bonds for $515,000. After accruing for interest, the carrying value of the Ritter bonds on April 1, 2012 was $516,875. Assuming Landis Co. has a portfolio of Available-for-Sale Debt Securities, what should Landis Co. report as a gain or loss on the bonds? a. ($14,685). b. ($10,935). c. ($1,875). d. $ 0.

C 516875 -515000 = 1875

Long Co. issued 100,000 shares of $10 par common stock for $1,200,000. A year later Long acquired 12,000 shares of its own common stock at $15 per share. Three months later Long sold 6,000 of these shares at $19 per share. If the cost method is used to record treasury stock transactions, to record the sale of the 6,000 treasury shares, Long should credit a. Treasury Stock for $114,000. b. Treasury Stock for $60,000 and Paid-in Capital from Treasury Stock for $54,000. c. Treasury Stock for $90,000 and Paid-in Capital from Treasury Stock for $24,000. d. Treasury Stock for $90,000 and Paid-in Capital in Excess of Par for $24,000.

C 6,000 X $15 = $90,000; 6,000 X $4 = $24,000.

Chapter 16 (Q112)

C Basis: $1,200,000 ÷ 500,000 = $2.40. Diluted: $1,200,000 ÷ (500,000 + 50,000) = $2.18

Beaty Inc. purchased Dunbar Co. and agreed to give stockholders of Dunbar Co. 10,000 additional shares in 2014 if Dunbar Co.'s net income in 2013 is $500,000; in 2012 Dunbar Co.'s net income is $520,000. Beaty Inc. has net income for 2012 of $300,000 and has an average number of common shares outstanding for 2012 of 100,000 shares. What should Beaty report as diluted earnings per share for 2012? a. $3.33 b. $3.00 c. $2.73 d. $2.51

C Since $520,000 > $500,000 include 10,000 shares in DEPS $300,000 / (100,000 + 10,000) = $2.73.

Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 7.5% convertible bonds outstanding during 2013. The preferred stock is convertible into 40,000 shares of common stock. During 2013, Hanson paid dividends of $.90 per share on the common stock and $3 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2013 was $600,000 and the income tax rate was 30%. Diluted earnings per share for 2013 is (rounded to the nearest penny) a. $2.08. b. $2.11. c. $2.29. d. $2.50.

C [$600,000 + ($1,000,000 X .075 X .7)] / [200,000 + 40,000 + (1,000 X 45)] = $2.29.

Shipley Corporation had net income for the year of $600,000 and a weighted average number of common shares outstanding during the period of 200,000 shares. The company has a convertible bond issue outstanding. The bonds were issued four years ago at par ($2,500,000), carry a 7% interest rate, and are convertible into 40,000 shares of common stock. The company has a 40% tax rate. Diluted earnings per share are a. $2.06 b. $2.79. c. $2.94. d. $3.22.

C [$600,000 + ($2,500,000 × .07 × .60)] ÷ (200,000 + 40,000) = $2.94.

At December 31, 2012 Pine Company had 200,000 shares of common stock and 10,000 shares of 5%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2012 or 2013. On February 10, 2014, prior to the issuance of its financial statements for the year ended December 31, 2013, Pine declared a 100% stock split on its common stock. Net income for 2013 was $900,000. In its 2013 financial statements, Pine's 2013 earnings per common share should be a. $4.25. b. $4.00. c. $2.13. d. $1.25.

C [$900,000 - (10,000 X $100 X .05)] / (200,000 X 2) = $2.13.

Chapter 16 (Q100)

C [(1,500,000 × 3 × 2) + (1,740,000 × 3 × 2) + (1,650,000 × 3 × 2) + (3,300,000 × 3)] ÷ 12 = 3,270,000.

On November 1, 2010, Howell Company purchased 600 of the $1,000 face value, 9% bonds of Ramsey, Incorporated, for $632,000, which includes accrued interest of $9,000. The bonds, which mature on January 1, 2015, pay interest semiannually on March 1 and September 1. Assuming that Howell uses the straight-line method of amortization and that the bonds are appropriately classified as available-for-sale, the net carrying value of the bonds should be shown on Howell's December 31, 2010, balance sheet at a. $600,000. b. $623,000. c. $622,080. d. $632,000.

C. 632,000 - 9000 = 623,000 623,000 - (23,000 x 2/50) = 622,080

Chapter 17 (Q70)

C. Dr. Available-for-Sale Securities: 200 X 1000 x.97 = 194k Dr. Interest Rev. : 200k x .045 x (3/6) = 4500 Cr. Cash: 194K +4500 = 198500

Chapter 16 (Q66)

D $1,000,000 / 2 = $500,000.

On January 1, 2013, Ritter Company granted stock options to officers and key employees for the purchase of 20,000 shares of the company's $1 par common stock at $20 per share as additional compensation for services to be rendered over the next three years. The options are exercisable during a five-year period beginning January 1, 2016 by grantees still employed by Ritter. The Black-Scholes option pricing model determines total compensation expense to be $180,000. The market price of common stock was $26 per share at the date of grant. The journal entry to record the compensation expense related to these options for 2013 would include a credit to the Paid-in Capital—Stock Options account for a. $0. b. $36,000. c. $40,000. d. $60,000.

D $180,000 ÷ 3 = $60,000.

At the beginning of 2015, Hamilton Company had retained earnings of $250,000. During the year Hamilton reported net income of $75,000, sold treasury stock at a ―gain‖ of $27,000, declared a cash dividend of $45,000, and declared and issued a small stock dividend of 1,500 shares ($10 par value) when the fair value of the stock was $30 per share. The amount of retained earnings available for dividends at the end of 2015 was: a. $284,500. b. $262,000. c. $257,500. d. $235,000.

D $250,000 + $75,000 - $45,000 - (1,500 X $30) = $235,000.

In 2012, Eklund, Inc., issued for $103 per share, 80,000 shares of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of Eklund's $25 par value common stock at the option of the preferred stockholder. In August 2013, all of the preferred stock was converted into common stock. The market value of the common stock at the date of the conversion was $30 per share. What total amount should be credited to additional paid-in capital from common stock as a result of the conversion of the preferred stock into common stock? a. $1,360,000. b. $1,040,000. c. $2,000,000. d. $2,240,000.

D $8,240,000 - (80,000 × 3 × $25) = $2,240,000.

Lerner Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,500,000 of 10% convertible bonds outstanding during 2013. The preferred stock is convertible into 40,000 shares of common stock. During 2013, Lerner paid dividends of $1.35 per share on the common stock and $4.50 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2013 was $900,000 and the income tax rate was 30%. Basic earnings per share for 2013 is (rounded to the nearest penny) a. $3.32. b. $3.63. c. $3.76. d. $4.05.

D $900,000 - (20,000 × $4.50) / 200K = 4.05

Chapter 15 (Q91)

D ($270,000 ÷ $10) X $28 = $756,000 [$28 - ($270,000 ÷ 30,000)] X 27,000 = $513,000 $756,000 - $513,000 = $243,000.

Pember Corporation started business in 2009 by issuing 200,000 shares of $20 par common stock for $36 each. In 2014, 25,000 of these shares were purchased for $52 per share by Pember Corporation and held as treasury stock. On June 15, 2015, these 25,000 shares were exchanged for a piece of property that had an assessed value of $1,010,000. Pember's stock is actively traded and had a market price of $60 on June 15, 2015. The cost method is used to account for treasury stock. The amount of paid-in capital from treasury stock transactions resulting from the above events would be a. $1,000,000. b. $ 600,000. c. $ 190,000. d. $ 200,000.

D ($60 - $52) X 25,000 = $200,000.

Berry Corporation has 50,000 shares of $10 par common stock authorized. The following transactions took place during 2014, the first year of the corporation's existence: Sold 10,000 shares of common stock for $13.50 per share. Issued 10,000 shares of common stock in exchange for a patent valued at $150,000. At the end of the Berry's first year, total paid-in capital amounted to a. $60,000. b. $135,000. c. $150,000. d. $285,000.

D (10,000 X $13.50) + $150,000 = $285,000.

Melvern's Corporation has an investment in 15,000 shares of Wallace Company common stock with a cost of $654,000. These shares are used in a property dividend to stockholders of Melvern's. The property dividend is declared on May 25 and scheduled to be distributed on July 31 to stockholders of record on June 15. The fair value per share of Wallace stock is $63 on May 25, $66 on June 15, and $68 on July 31. The net effect of this property dividend on retained earnings is a reduction of a. $1,020,000. b. $ 990,000. c. $ 945,000. d. $ 654,000.

D (15,000 X $63) = $945,000 $945,000 - ($945,000 - $654,000) = $654,000.

Patton Company purchased $400,000 of 10% bonds of Scott Co. on January 1, 2011, paying $376,100. The bonds mature January 1, 2021; interest is payable each July 1 and January 1. The discount of $23,900 provides an effective yield of 11%. Patton Company uses the effectiveinterest method and plans to hold these bonds to maturity On July 1, 2011, Patton Company should increase its Held-to-Maturity Debt Securities account for the Scott Co. bonds by a. $2,392. b. $1,371. c. $1,196. d. $686.

D (376100 x .055) - (400k x .05) = 686

Stine Inc. had 400,000 shares of common stock issued and outstanding at December 31, 2012. On July 1, 2013 an additional 400,000 shares were issued for cash. Stine also had stock options outstanding at the beginning and end of 2013 which allow the holders to purchase 120,000 shares of common stock at $28 per share. The average market price of Stine's common stock was $35 during 2013. The number of shares to be used in computing diluted earnings per share for 2013 is a. 896,000 b. 824,000 c. 696,000 d. 624,000

D (400,000 X 6/12) + (800,000 X 6/12) + [((35 - 28) / 35) X 120,000] = 624,000.

Chapter 15 (Q83)

D (450,000 X $4) + (60,000 X $7) = $2,220,000.

Mingenback Company has 560,000 shares of $10 par value common stock outstanding. During the year Mingenback declared a 15% stock dividend when the market price of the stock was $48 per share. Two months later Mingenback declared a $.60 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by: a. $ 386,400. b. $ 528,000. c. $4,032,000. d. $4,418,400.

D (560,000 X .15 X $48) + (560,000 X 1.15 X $.60) = $4,418,400.

Written, Inc. has outstanding 600,000 shares of $2 par common stock and 120,000 shares of no-par 8% preferred stock with a stated value of $5. The preferred stock is cumulative and nonparticipating. Dividends have been paid in every year except the past two years and the current year. Assuming that $126,000 will be distributed as a dividend in the current year, how much will the preferred stockholders receive? a. $42,000. b. $48,000. c. $96,000. d. $126,000.

D 120,000 X $5 X .08 X 3 = $144,000 > $126,000.

Gibbs Corporation owned 20,000 shares of Oliver Corporation's $5 par value common stock. These shares were purchased in 2011 for $180,000. On September 15, 2015, Gibbs declared a property dividend of one share of Oliver for every ten shares of Gibbs held by a stockholder. On that date, when the market price of Oliver was $28 per share, there were 180,000 shares of Gibbs outstanding. What NET reduction in retained earnings would result from this property dividend? a. $162,000 b. $504,000 c. $171,000 d. $342,000

D 180,000 ÷ 10) X $28 = $504,000 $504,000 - [$504,000 - ($180,000 X 18/20)] = $342,000.

On September 1, 2014, Valdez Company reacquired 20,000 shares of its $10 par value common stock for $15 per share. Valdez uses the cost method to account for treasury stock. The journal entry to record the reacquisition of the stock should debit a. Treasury Stock for $200,000. b. Common Stock for $200,000. c. Common Stock for $200,000 and Paid-in Capital in Excess of Par for $75,000. d. Treasury Stock for $300,000.

D 20,000 X $15 = $300,000.

Fugate Company had 750,000 shares of common stock issued and outstanding at December 31, 2012. On July 1, 2013 an additional 750,000 shares were issued for cash. Fugate also had stock options outstanding at the beginning and end of 2013 which allow the holders to purchase 225,000 shares of common stock at $20 per share. The average market price of Fugate's common stock was $25 during 2013. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2013? a. 1,545,000 b. 1,305,000 c. 1,181,250 d. 1,170,000

D 750,000 + (750,000 × 6/12) + [(25 - 20)/25 × 225,000] = 1,170,000.

Terry Corporation had 400,000 shares of common stock outstanding at December 31, 2012. In addition, it had 90,000 stock options outstanding, which had been granted to certain executives, and which gave them the right to purchase shares of Terry's stock at an option price of $37 per share. The average market price of Terry's common stock for 2012 was $50. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2012? a. 400,000 b. 431,622 c. 466,600 d. 423,400

D 90,000 - (90,000 × $37 ÷ $50) = 23,400 400,000 + 23,400 = 423,400.

Hanson Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 7.5% convertible bonds outstanding during 2013. The preferred stock is convertible into 40,000 shares of common stock. During 2013, Hanson paid dividends of $.90 per share on the common stock and $3 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2013 was $600,000 and the income tax rate was 30%. Basic earnings per share for 2013 is (rounded to the nearest penny) a. $2.20. b. $2.42. c. $2.51. d. $2.70.

D [$600,000 - (20,000 X $3] / 200,000 = $2.70.

Tracy Co. owns 4,000 of the 10,000 outstanding shares of Penn Corp. common stock. During 2010, Penn earns $120,000 and pays cash dividends of $40,000. Tracy should report investment revenue for 2010 of a. $16,000. b. $32,000. c. $40,000. d. $48,000.

D. $120,000 × .4 = $48,000.

Harrison Co. owns 20,000 of the 50,000 outstanding shares of Taylor, Inc. common stock. During 2011, Taylor earns $800,000 and pays cash dividends of $640,000. Harrison should report investment revenue for 2011 of a. $320,000. b. $256,000. c. $64,000. d. $0.

a $800,000 × (20,000 ÷ 50,000) = $320,000.

On January 3, 2010, Moss Co. acquires $100,000 of Adam Company's 10-year, 10% bonds at a price of $106,418 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to-maturity. Assuming that Moss Co. uses the straight-line method, what is the amount of premium amortization that would be recognized in 2012 related to these bonds? *a. $642 b. $422 c. $460 d. $502

a ($106,418 - $100,000) ÷ 10 = $642.

Chapter 17 (Q94)

a. $10,000 + $20,000 = $30,000.

During 2010, Woods Company purchased 20,000 shares of Holmes Corp. common stock for $315,000 as an available-for-sale investment. The fair value of these shares was $300,000 at December 31, 2010. Woods sold all of the Holmes stock for $17 per share on December 3, 2011, incurring $14,000 in brokerage commissions. Woods Company should report a realized gain on the sale of stock in 2011 of a. $11,000. b. $25,000. c. $26,000. d. $40,000.

a. [(20,000 × $17) - $14,000] - $315,000 = $11,000.

Richman Co. purchased $300,000 of 8%, 5-year bonds from Carlin, Inc. on January 1, 2010, with interest payable on July 1 and January 1. The bonds sold for $312,474 at an effective interest rate of 7%. Using the effective interest method, Richman Co. decreased the Available-for-Sale Debt Securities account for the Carlin, Inc. bonds on July 1, 2010 and December 31, 2010 by the amortized premiums of $1,062 and $1,098, respectively. At February 1, 2011, Richman Co. sold the Carlin bonds for $309,000. After accruing for interest, the carrying value of the Carlin bonds on February 1, 2011 was $310,125. Assuming Richman Co. has a portfolio of Available-for-Sale Debt Securities, what should Richman Co. report as a gain (or loss) on the bonds? a. $0. b. ($1,125). c. ($6,561). d. ($8,811)

b $310,125 - $309,000 = $1,125

Instrument Corp. has the following investments which were held throughout 2010-2011: Market Value Cost 12/31/10 12/31/11 Trading $300k $400k $380k Available-for-sale 300k 320k 360k What amount of gain or loss would Instrument Corp. report in its income statement for the year ended December 31, 2011 related to its investments? a. $20,000 gain. b. $20,000 loss. c. $140,000 gain. d. $80,000 gain.

b $400,000 - $380,000 = $20,000 loss.

On October 1, 2010, Menke Co. purchased to hold to maturity, 200, $1,000, 9% bonds for $208,000. An additional $6,000 was paid for accrued interest. Interest is paid semiannually on December 1 and June 1 and the bonds mature on December 1, 2014. Menke uses straight-line amortization. Ignoring income taxes, the amount reported in Menke's 2010 income statement from this investment should be a. $4,500. b. $4,020. c. $4,980. d. $5,460

b ($200,000 × .09 × 3/12) - ($8,000 × 3/50) = $4,020.

During 2008, Hauke Co. purchased 2,000, $1,000, 9% bonds. The carrying value of the bonds at December 31, 2010 was $1,960,000. The bonds mature on March 1, 2015, and pay interest on March 1 and September 1. Hauke sells 1,000 bonds on September 1, 2012, for $988,000, after the interest has been received. Hauke uses straight-line amortization. The gain on the sale is a. $0. b. $4,800. c. $8,000. d. $11,200.

b Discount amortization: $40,000 × 8/50 = $6,400 ($1,960,000 + $6,400) ÷ 2 = $983,200; $988,000 - $983,200 = $4,800 gain.

On January 2, 2010 Pod Company purchased 25% of the outstanding common stock of Jobs, Inc. and subsequently used the equity method to account for the investment. During 2010 Jobs, Inc. reported net income of $420,000 and distributed dividends of $180,000. The ending balance in the Investment in Pod Company account at December 31, 2010 was $320,000 after applying the equity method during 2010. What was the purchase price Pod Company paid for its investment in Jobs, Inc? a. $170,000 b. $260,000 c. $380,000 d. $470,000

b X + [($420,000 - $180,000) × .25] = $320,000 X + $60,000 = $320,000 X = $260,000.

Brown Corporation earns $240,000 and pays cash dividends of $80,000 during 2010. Dexter Corporation owns 3,000 of the 10,000 outstanding shares of Brown. How much investment income should Dexter report in 2010? a. $80,000. b. $72,000. c. $48,000. d. $240,000.

b. $240,000 × .3 = $72,000.

Chapter 17 (Q89)

b. ($40,000 - $33,000) - $2,000 = $5,000 unrealized gain.

Chapter 17 (Q93)

b. ($400,000 - $380,000) = $20,000.