Acc Exam 1

Real-Tech, a developer of augmentedreality software, issues $100,000 in bonds, due in5 years with 9% interest payable annually at year-end. At the time of issue, the market rate for suchbonds is 11%. What is the price of the bond? That is,what is the present value of the bond issue?

$92,608.10

Bond Retirement with a Gain andUnamortized Bond Discount entry

Debit: Bonds Payable (Face Amount) Credit: Cash (Retirement Price) Credit: Discount on Bonds Payable (Unamortized Amount) Credit: Gain on Retirement of Bonds [PLUG]

Bond Retirement with a Loss andUnamortized Bond Discount entry

Debit: Bonds Payable (Face Amount) Debit: Loss on Retirement of Bonds [PLUG] Credit: Cash (Retirement Price) Credit: Discount on Bonds Payable (Unamortized Amount)

Bond Retirement with a Gain andUnamortized Bond Premium entry

Debit: Bonds Payable (Face Amount) Debit: Premium on Bonds Payable (Unamortized Amount) Credit: Cash (Retirement Price) Credit: Gain on Retirement of Bonds [PLUG]

Bond Retirement with a Loss andUnamortized Bond Premium entry

Debit: Bonds Payable (Face Amount) Debit: Premium on Bonds Payable (Unamortized Amount) Debit: Loss on Retirement of Bonds [PLUG] Credit: Cash (Retirement Price)

Effective interest entry to amortize discount

Debit: Interest Expense (CV*Market Rate*1/2 if semiannual interest) Credit: Cash (Face * Stated Rate * 1/2 if semiannual interest) Credit: Discount on Bonds Payable [PLUG]

Effective interest entry to amortize premium

Debit: Interest Expense (CV*Market Rate*1/2 if semiannual interest) Debit: Premium on Bonds Payable [PLUG] Credit: Cash (Face * Stated Rate * 1/2 if semiannual interest)

Roadway Freight Corp. on June 10 declared a cash dividend of 50₵ a shareon 1.8 million shares payable July 16 to all stockholders of record June 24. What are the entries to record this?

Declaration Date Dr. Retained Earnings 900,000 Cr. Dividends Payable (1.8 Mil * $.50) 900,000 Date of Record No Entry Payment Date Dr. Dividends Payable 900,000 Cr. Cash 900,000

Assume that Citigroup declared a dividend on December 31, 2025, on its500,000 shares of $1 par value, 7%, cumulative preferred shares outstanding.Citigroup did not declare any dividends in 2024. What amount of dividend will be paid to Citigroup's preferred shareholders as a result of the dividend declared on December 31, 2025?

Dividendcalculation: 500,000 shares × $1 par = $500,000 par value outstanding $500,000 par value × .07 dividend rate = $35,000 annual dividend Preferred dividend paid: 2024 dividends in arrears $35,000 2025 dividends 35,000 Total $70,000

In 2025, Mason Company is to distribute $50,000 as cash dividends,its outstanding common stock has a par value of $400,000, and its 6percent preferred stock has a par value of $100,000. They did not pay for the previous 2 years. 1. If the preferred stock is cumulative and non-participating, and MasonCompany did not pay dividends on the preferred stock in thepreceding two years:

Dividends In arrears. 6% of $100,000 for 2years Preferred $12,000 Current year's dividend, 6% of $100,000 Preferred $6,000 The remainder to common Common 32,000 18,000 Preferred total, 32,000 Total Common 50,000 Total overall

In 2025, Mason Company is to distribute $50,000 as cash dividends,its outstanding common stock has a par value of $400,000, and its 6percent preferred stock has a par value of $100,000. 4. If the preferred stock is cumulative and fully participating, and MasonCompany did not pay dividends on the preferred stock in thepreceding two years:

Dividends in arrears, 6% of $100,000 for 2 years $12,000 Preferred Current year's dividend, 6% 6,000 Preferred, $24,000 Common Participating dividend, 1.6% ($8,000 ÷ $500,000) 1,600 Preferred, 6,400 Common

On January 1, Year 1 Xavier Company issued and sold a$400,000, 7%, 10-year bond payable, and received proceeds of$396,000. Interest is payable each June 30 and December 31.Xavier uses the straight-line method to amortize the discount. Assume that Xavier uses the straight-line method ofamortization of any discount or premium on bonds. Preparethe general journal entry to record the first semiannualinterest payment on June 30, Year 1.

Dr. Bond Interest Expense $14,200 Cr. Discount on Bonds Payable ($4,000/20) 200 Cr. Cash ($400,000 * 0.07 * ½) 14,000

Strider Corporation issued 14%, 5-year bonds with a par value of$5,000,000 on January 1, Year 1. Interest is to be paid semiannuallyon each June 30 and December 31. The bonds are issued at$5,368,035 cash when the market rate for this bond is 12%. Assume that Strider uses the straight-line method of amortization ofany discount or premium on bonds. Prepare the journal entry torecord the first semiannual interest payment on June 30, Year 1.

Dr. Bond Interest Expense 313,196.50 Dr. Premium on Bonds Payable($368,035/10) 36,803.50 Cr. Cash ($5,000,000 * 0.14 * ½) 350,000.00

Retirement of the Fila bonds at maturity for$100,000 cash.

Dr. Bonds Payable 100,000 Cr. Cash 100,000

Refer to the Edmonds Company bonds in Example 13.18.Assume that the Edmonds Company fair value change on its bonds isdue to its credit rating dropping from AA to BB. What entry does Edmonds make to record the change infair value, under these conditions?

Dr. Bonds Payable 20,000 Cr. Unrealized gains/losses-equity 20,000

Edmonds Company has issued $500,000 of 6% bonds at facevalue on May 1, 2025. Edmonds chooses the fair value option for thesebonds. At December 31, 2025, the value of the bonds is now $480,000because interest rates in the market have increased to 8%. What entry does Edmonds make to record the change in fairvalue?

Dr. Bonds Payable 20,000 Cr. Unrealized gains/losses-income 20,000

Assume that $100,000 of callable bonds will beretired on July 1, 2018, after the first interestpayment. The bond carrying value is $104,500.Thebonds have a call premium of $3,000.

Dr. Bonds payable 100,000 Dr. Premium on Bonds Payable 4,500 Cr. Gain on restructuring 1,500 Cr. Cash 103,000

State Bank issues 10,000 shares of $10 par valuepreferred stock for $12 cash per share. How would State bank record this transaction?

Dr. Cash (10,000 shares × $12) 120,000 Cr. Preferred Stock (10,000 shares × $10) 100,000 Cr. Paid-in Capital in Excess of Par—PreferredStock (10,000 × $2) 20,000

As indicated in Example 14.9, Pacific acquired 10,000 shares ofits treasury stock at $11 per share. It now sells 1,000 of the treasuryshares at $15 per share on March 10, 2025. How would Pacific record the sale of the treasury shares?

Dr. Cash (1000*15) 15,000 Cr. Treasury stock (1000*11) 11,000 Cr. Paid-in Capital from Treasury stock (1000*4) 4,000

From Example 14.9, Pacific acquired 10,000 shares of its treasurystock at $11 per share. Pacific now sells an additional 1,000 shares oftreasury stock on March 21 at $8 per share. How would Pacific record the sale of the treasury shares?

Dr. Cash (1000*8) 8,000 Dr. Paid in Capital from Treasury Stock (1000*3) 3,000 Cr. Treasury stock (1000*11) 11,000

Pacific acquired 10,000 shares of its treasurystock at $11 per share. Pacific now sells an additional 1,000 shares oftreasury stock on March 21 at $8 per share. Continuing the Pacific example, assume that Pacific sells an additional 1,000 shares at $8 per share on April 10. The balance in the Paid-inCapital from Treasury Stock account (before the April 10 sale) is as follows.

Dr. Cash (1000*8) 8,000 Dr. Paid in Capital from Treasury Stock (remaining) 1,000 Dr. Retained earnings (needed after PIC empty) 2,000 Cr. Treasury stock (1000*11) 11,000

Assume that TripNerd issued 4,000 shares of stock with a parvalue of $1 for $10 per share. What entry would TripNerd make to record this transaction?

Dr. Cash (4,000 × $10) 40,000 Cr. Common Stock (4,000 × $1) 4,000 Cr. Paid-in Capital in Excess of Par—CommonStock (4,000 × $9) 36,000

Assume now that TripNerdissued 4,000 shares of stock with a stated value of $1 for $10 per share. What entry would TripNerd make to record this transaction?

Dr. Cash (4,000 × $10) 40,000 Cr. Common Stock (4,000 × $1) 4,000 Cr. Paid-in Capital in Excess of Stated Value—Common Stock (4,000 × $9) 36,000

Assume now that TripNerd issued 4,000 shares of no-par stock for $10 per share. Make this entry. What if TripNerd issues another 500 shares for $11 per share?

Dr. Cash (4,000 × $10) 40,000 Cr. Common Stock (no-par value) 40,000 Dr. Cash (500 × $11) 5,500 Cr. Common Stock (no-par value) 5,500

Prepare an entry for the following transaction: October 15 Sold 1,000 of the treasury shares for $8 per share. NOTE: 200,000 original shares, $1 par, issued for $1,000,000. Bought back 2,000 shares at $6 on September 10.

Dr. Cash (8*1000) 8,000 Cr. Paid-in capital from Treasury Stock (1000*2) 2,000 Cr. Treasury Stock (6*1000) 6,000

Prepare an entry for the following transaction: March 4 Issued 200,000 shares of $1 par value common stock for$1,000,000.

Dr. Cash 1,000,000 Cr. Common Stock (200,000*1) 200,000 Cr. Paid-in Capital in Excess of Par - CS (200,000*4) 800,000

Scandinavian Imports issues a $10,000, three-year note, at face value to Fjords Unlimited. The stated rateand the effective rate were both 10 percent. Scandinavianwould record the issuance of the note as follows. What about annual interest?

Dr. Cash 10,000 Cr. Notes Payable 10,000 Recognize interest as: Dr. Interest Expense 1,000 Cr. Cash 1,000 ($10,000 × 10% = $1,000

On January 1, Year 1 Xavier Company issued and sold a$400,000, 7%, 10-year bond payable, and received proceeds of$396,000. Interest is payable each June 30 and December 31.Xavier uses the straight-line method to amortize the discount. Prepare the general journal entry to record the issuance of thebonds on January 1, Year 1.

Dr. Cash 396,000 Dr. Discount on Bonds Payable 4,000 Cr. Bonds Payable 400,000

Strider Corporation issued 14%, 5-year bonds with a par value of$5,000,000 on January 1, Year 1. Interest is to be paid semiannuallyon each June 30 and December 31. The bonds are issued at$5,368,035 cash when the market rate for this bond is 12%. Prepare the general journal entry to record the issuance of thebonds on January 1, Year 1.

Dr. Cash 5,368,035 Cr. Premium on Bonds Payable 368,035 Cr. Bonds Payable 5,000,000

Turtle Cove Company issued the 3 -year, $10,000, zero-interest-bearing note to Jeremiah Company. The implicit rate that equated the totalcash to be paid ($10,000 at maturity) to the present value of the futurecash flows ($7,721.80 cash proceeds at date of issuance) was 9%. (Thepresent value of $1 for 3 periods at 9% is $0.77218.) What is the entry to record issuance of the note?

Dr. Cash 7,721.80 Dr. Discount on Notes Payable 2,278.20 Cr. Notes Payable 10,000.00

SteadyShot recently issued 1,000,000 shares of $1 par valuecommon stock at a total price of $8,000,000. Costs incurred inissuing the stock are underwriter fees $500,000, printing fees$29,000, external legal fees $250,000, travel costs of $25,000 relatedto roadshows to sell these shares to potential investors, and $50,000of indirect costs from SteadyShot's internal legal and accountingteams working on the stock issue. What entry would SteadyShot make to record thistransaction?

Dr. Cash 8,000,000 Cr. Common Stock (1,000,000shares × $10) 1,000,000 Cr. Paid-in Capital in Excess ofPar—Common Stock 7,000,000 Dr. Paid-in Capital in Excess of Par—Common Stock 804,000 Cr. Cash 804,000 Internal legal and accounting costs for working on the issuance should beexpensed because these costs would have been incurred even if SteadyShot had nothad issued common stock.

Webb Corporation sold the Watson bonds on July 1, 2026, for$90,000, at which time it had an amortized cost of $94,214. Make the entry for this transaction.

Dr. Cash 90,000 Dr. Loss on Sale of Investments 4,214 Cr. Debt Investments 94,214

Prepare an entry for the following transaction: November 20 Retired the shares remaining in treasury. NOTE: 200,000 original shares, $1 par, issued for $1,000,000. Bought back 2,000 shares at $6 on September 10. Sold 1000 treasury on October 15 for $8 per.

Dr. Common Stock (1000*1) 1,000 Dr. Paid-in Capital in excess of par - CS (1000-4) 4000 Dr. Paid-in Capital from Treasury Stock 2,000 Cr. Retained Earnings (remainder) 1,000 Cr. Treasury Stock 6,000

Continuing the Pacific example, after the sale of treasuryshares on April 10, 2025, the company decides to retire the remaining 7,000 treasury shares on April 15, 2025. Assume $1 original par and $10 original sale price, TS bought for $11 per share

Dr. Common Stock (7000*1) 7,000 Dr. Paid in Capital in Excess of Par - CS (7000*9) 63,000 Dr. Retained earnings (remainder from PIC) 7,000 Cr. Treasury Stock (7000*11) 77,000

Hardy Company purchases bonds in Fielder Company during2025, which cost $100,000, and classified them as available-for-sale. OnDecember 31, 2025, the fair value of these securities is $125,000. How should Hardy record this transaction if it chooses touse the fair value option?

Dr. Debt Investments 25,000 Cr. Unrealized Holding Gain or Loss—Income 25,000 In this situation, Hardy uses the Debt Investments account to record thechange in fair value at December 31. It does not use a Fair ValueAdjustment account because the accounting for a fair value option is onan investment-by-investment basis rather than on a portfolio basis.

Uptown Financial purchased $100,000 of 8% bonds of GamedropInc. on January 1, 2025, at a discount, paying, $92,278. The bondsmature January 1, 2030, and yield 10%. Interest is payable each July 1and January 1.Debt Investments 92,278Cash 92,278Uptown's held-to-maturity security was purchased at a discount because itwas only paying 8% when the market rate was 10%.Uptown uses a Debt Investments account to record the cost of the debtsecurity (often referred to as the net method).LO 1LO16.1: Accounting for Investments inDebt Securities What entry should Uptown Financial use to record thepurchase of the bonds from Gamedrop, assuming Uptown intends tohold the bonds to maturity?

Dr. Debt Investments 92,278 Cr. Cash 92,278

American City Bank agrees to accept from Union Mortgage320,000 shares of common stock ($10 par) that has a fairvalue of $16,000,000, in full settlement of the $20,000,000loan obligation. American City Bank (creditor) records thistransaction as follows.

Dr. Equity Investments 16,000,000 Dr. Allowance for Doubtful Accounts 4,000,000 Cr. Notes Receivable (from UnionMortgage) 20,000,000

Assume that on December 31, 2025, Venture Publishersdetermined the fair value its trading securities portfolio has decreased $3750 from its amortized cost. What is the entry to record this?

Dr. Fair Value Adjustment 3,750 Cr. Unrealized Holding Gain or Loss―Income 3,750

Webb has an unrealized holding loss of $5,000. However, theFair Value Adjustment account already has a credit balance of$9,537. To reduce the adjustment account balance to $5,000,Webb debits it for $4,537 on December 31, 2026.

Dr. Fair Value Adjustment 4,537 Cr. Unrealized Holding Gain or Loss—Equity 4,537

American City Bank loaned $20,000,000to Union Mortgage Company. Union Mortgage cannot meetits loan obligations. American City Bank agrees to acceptfrom Union Mortgage real estate with a fair value of$16,000,000 in full settlement of the $20,000,000 loanobligation. The real estate has a carrying value of$21,000,000 on the books of Union Mortgage. American CityBank (creditor) records this transaction as follows.

Dr. Land 16,000,000 Dr. Allowance for Doubtful Accounts 4,000,000 Cr. Note Receivable (from Union) 20,000,000

A company holds $150,000 par value of bondswith a carrying value of $147,950. The companycalls the bonds at 101. Prepare the journal entry torecord the retirement of the bonds.

Dr. Loss on Retirement of Bonds 3,550 Dr. Bonds Payable 150,000 Cr. Cash ($150,000*1.01) 151,500 Cr. Discount on Bonds Payable 2,050

Escobar Company receives a note receivable from one of its customers for $620,000on December 31, 2025. On December 31, 2025, the fair value and carrying value of thenote receivable is $620,000. Escobar decides to use the fair value option for thisreceivable. On December 31, 2026, the note receivable has a carrying value of $620,000,but the fair value increased to $810,000 due to a decrease in interest rates.

Dr. Note Receivable 190,000 Cr. Unrealized Holding Gain ―Income 190,000 Because Escobar has elected the fair value option, it reports the receivable at fair valuewith any unrealized holding gains and losses reported as part of net income. Theunrealized holding gain is the difference between the fair value and the carrying valueamount on December 31,2026, which for Escobar is $190,000 ($810,000 - $620,000).Escobar makes the following entry to record the increase in value of the notes receivableand record the unrealized holding gain.

American City Bank loaned $20,000,000to Union Mortgage Company. Union Mortgage cannot meetits loan obligations. American City Bank agrees to acceptfrom Union Mortgage real estate with a fair value of$16,000,000 in full settlement of the $20,000,000 loanobligation. The real estate has a carrying value of$21,000,000 on the books of Union Mortgage. UnionMortgage (debtor) records this transaction as follows.

Dr. Notes Payable (American City) 20,000,000 Dr. Loss on Disposal of Land 5,000,000 Cr. Land 21,000,000 Cr. Gain on Restructuring of Debt 4,000,00

American City Bank agrees to accept from Union Mortgage320,000 shares of common stock ($10 par) that has a fairvalue of $16,000,000, in full settlement of the $20,000,000loan obligation. Union Mortgage (debtor) records thistransaction as follows.

Dr. Notes Payable (to American City Bank) 20,000,000 Cr. Common Stock (320,000 × $10) 3,200,000 Cr. Paid-in Capital in Excess of Par—Common Stock 12,800,000 Cr. Gain on Restructuring of Debt 4,000,000

Marlow recieves a patent for issuance of stock. Marlowe cannot readily determine the fair value of the stock nor the fair value ofthe patent. An independent consultant values the patent at $125,000 based ondiscounted expected cash flows. Assuming an issuance of 10,000 shares at $10 par, do the entry for this transaction.

Dr. Patents 125,000 Cr. Common stock (10,000 shares × $10 share) 100,000 Cr. Paid-in Capital in Excess of Par—Common Stock 25,000

Marlow recieves a patent for issuance of stock. Marlowe cannot readily determine the fair value of the patent, but it knows the fairvalue of the stock is $140,000. Assuming an issuance of 10,000 shares at $10 par, do the entry for this transaction.

Dr. Patents 140,000 Cr. Common Stock (10,000 shares × $10 per share) 100,000 Cr. Paid-in Capital in Excess of Par—Common Stock 40,000

Marlow recieves a patent for issuance of stock. Marlowe cannot readily determine the fair value of the stock, but it determines thefair value of the patent is $150,000. Assuming an issuance of 10,000 shares at $10 par, do the entry for this transaction.

Dr. Patents 150,000 Cr. Common Stock (10,000 shares × $10 per share) 100,000 Cr. Paid-in Capital in Excess of Par—Common Stock 50,000

Marinelli Corporation has outstanding par value of convertiblepreferred stock of $400,000 and related Paid-in Capital in Excess of Par—Preferred Stock $60,000. Stockholders convert the preferred stock into no-parcommon stock, which is presently reported at $1,000,000. The fair value of theconvertible preferred stock is $600,000. How would Marinelli record the conversion of this preferred stock?

Dr. Preferred Stock 400,000 Dr. Paid-in Capital in Excess of Par—Preferred Stock 60,000 Cr. Common Stock 460,000 The Preferred Stock and Related Paid-in Capital in Excess of Par accounts aredebited at their book value. Common stock does not have a par value so theentire amount is credited to Common Stock. Marinelli does not record any gainor Loss when dealing with stockholders in their capacity as business owners.

January 20, 2025, Pacific acquires 10,000 shares of its stock at $11 per share. How would Pacific record the repurchase of these shares?

Dr. Treasury Stock (10000*11) 110,000 Cr. Cash 110,000

Prepare an entry for the following transaction: September 10 Bought back 2,000 shares at a price of $6 per share. NOTE: 200,000 original shares, $1 par, issued for $1,000,000

Dr. Treasury Stock (2000*6) 12000 Cr. Cash 12000

Webb Corporation's portfolio, which is comprised entirely of corporate bonds, has an amortized cost of 293,537 and a fair value of 284,000. What is the adjusting entry to report this difference, if any?

Dr. Unrealized Holding Gain or Loss—Equity 9,537 Cr. Fair Value Adjustment 9,537

Durham Company holds a 28% stake in Suppan Inc. Durhampurchased the investment in 2025 for $930,000. At December 31, 2025,the fair value of the investment is $900,000. Durham elects to report theinvestment in Suppan using the fair value option. What entry should Durham make to record the investmentunder the fair value option?

Dr. Unrealized Holding Gain or Loss—Income 30,000 Cr. Equity Investments 30,000 In contrast to equity method accounting, if the fair value option is chosen,Durham does not report its pro rata share of the income or loss fromSuppan. In addition, any dividend payments are credited to DividendRevenue and therefore do not reduce the Equity Investments account.

Scenic Development Company sells land having a cash sale priceof $200,000 to Health Spa, Inc. In exchange for the land, Health Spa gives a5-year, $293,866, zero-interest-bearing note. The $200,000 cash sale pricerepresents the present value of the $293,866 note discounted at 8% for 5years. B: Given that the difference between the cash sale price of $200,000 andthe $293,866 face amount of the note represents interest at an effectiverate of 8%, the transaction is recorded as follows.

Heath Spa Dr. Land 200,000 Dr. Discount on Notes Payable 93,886 Cr. Notes Payable 293,886 Scenic development Dr. Notes Receivable 293866 Cr. Discount on NR 93,886 Cr. Sales Revenue 200,000

Debt investments reporting if... Held to maturity Trading Available for sale

Held to maturity = Amortized cost, current/noncurrent assets (Interest is recognized as revenue) Trading = fair value, current assets (Interest is recognized as revenue. Unrealized holdinggains and losses are recognized in income.) Available for sale = fair value, current/noncurrent assets (nterest is recognized as revenue. Unrealized holdinggains and losses are not rec-ognized in income butin other comprehensive income.)

Equity investment reporting if... Insignificant influence Significant influence Controlling influence

Insignificant influence = fair value, Current or noncurrentassets. (Dividends are recognized as revenue. Unrealized gainsand losses are included in income.) Significant influence - Equity method, Investments originallyrecorded at cost with periodicadjustment for the investor's shareof the investee's income or loss,and decreased by all dividendsreceived from the investee,subsequent to the date of theinvestment. (Revenue is recognized to the extent of the investee'sincome or loss.) Controlling influence - Consolidation (Parent and subsidiary company income or losscombined.)

On March 1, 2025, GreenTea Corporation issues 10-year bonds atpar, dated January 1, 2025, with a par value of $800,000. These bonds havean annual interest rate of 6%, payable semiannually on January 1 and July 1. Refer to the bonds issued in Example 13.5, except now assumethat the 6% bonds were issued at 102. What entries does GreenTea make in March and July 2025 torecord issuance and interest expense for the bonds?

Issuance: Dr. Cash ((800000*1.02)+(800000*.06*(2/12)) 824,000 Cr. Bonds Payable 800,000 Cr. Premium on Bonds Payable 16,000 Cr. Interest Expense 8,000 Interest expense: Dr. Interest expense 23,457.63 Dr. Premium on Bonds Payable ((16000/118)*4) 542.37 Cr. Cash (800000*.06*(6/12)) 24000

On March 1, 2025, GreenTea Corporation issues 10-year bonds atpar, dated January 1, 2025, with a par value of $800,000. These bonds havean annual interest rate of 6%, payable semiannually on January 1 and July 1. What entries does GreenTea make in March and July 2025 torecord issuance and interest expense for the bonds?

Issuance: Dr. Cash 808,000 Cr. Bonds Payable 800,000 Cr. Interest expense (800,000*.06*(2/12)) 8000 Interest Expense: Dr. Interest Expense 24000 Cr. Cash (800,000*.06*(6/12)) 24000

On December 31, 2025, Wunderlich Company issued apromissory note to Brown Interiors Company for architecturalservices related to its building. The note has a face value of$550,000, a due date of December 31, 2030, and bears a statedinterest rate of 2%, payable at the end of each year. Interest paideach period is therefore $11,000 ($550,000 × .02). Wunderlichcannot readily determine the fair value of the architecturalservices, nor is the note readily marketable. On the basis ofWunderlich's credit rating, the absence of collateral, the primeinterest rate at that date, and the prevailing interest onWunderlich's other outstanding debt, the company imputes an8% interest rate in this situation.What is the present value of the note and the imputedfair values of the services received by Wunderlich? What is the entry to record it?

Present value of the note is (418,239) Discount on notes payable is $131,761 Dr. Buildings 418239 Dr. Discount on NP 131761 Cr. Notes payable 550,000

Scenic Development Company sells land having a cash sale priceof $200,000 to Health Spa, Inc. In exchange for the land, Health Spa gives a5-year, $293,866, zero-interest-bearing note. The $200,000 cash sale pricerepresents the present value of the $293,866 note discounted at 8% for 5years. (a) Should both parties record the transaction on the saledate at the face amount of the note, which is $293,866? Explain.

a. No. If they did, Health Spa's Land account and Scenic's sales would beoverstated by $93,866 (the interest for 5 years at an effective rate of8%). Similarly, interest revenue to Scenic and interest expense toHealth Spa for the 5-year period would be understated by $93,866.

Stock Splits

• To reduce the market value of shares. • No entry recorded for a stock split. • Decrease par value and increase number of shares. • Include in notes

Large Stock Dividend

->20-25% -record at par value of stock

FACTS On Jan. 1, 2025, Feucht Farms Inc. makes the two following acquisitions. 1. Purchases a barn by issuing a 6%, 8-year promissory note having a maturityvalue of $250,000 (interest payable annually) The company has to pay 11 %interest for funds from its bank 2. Purchases land having a fair value of $200,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $337,012 a. Record the two journal entries that should be recorded by Feucht Farms for thetwo purchases on January 1, 2025.

1. Dr. Buildings 185674.30 Dr. Discount on NP 34325.70 Cr. Notes payable 250000 2. Dr. Land 200000 Dr. Discount on NP 137012 Cr. Notes receivable 337012

FACTS On Jan. 1, 2025, Feucht Farms Inc. makes the two following acquisitions. 1. Purchases a barn by issuing a 6%, 8-year promissory note having a maturityvalue of $250,000 (interest payable annually) The company has to pay 11 %interest for funds from its bank 2. Purchases land having a fair value of $200,000 by issuing a 5-year, zero-interest-bearing promissory note in the face amount of $337,012 Record the interest expense entries with effective interest method.

1. Dr. Interest Expense($185,674.30 × .11) 20,424.17 Cr. Discount on Notes Payable 5,424.17 Cr. Cash($250,000 × .06) 15,000.00 2. Dr. Interest Expense 22,000.00 Cr. Discount on Notes Payable($200,000 × .11) 22,000.00

In 2025, Mason Company is to distribute $50,000 as cash dividends,its outstanding common stock has a par value of $400,000, and its 6percent preferred stock has a par value of $100,000. 1. If the preferred stock are noncumulative and nonparticipating:

6% of $100,000 $6,000 Preferred The remainder to common . $44,000 Common $6,000 Total Preferred, $44,000 Total Common $50,000 Total overall

Twilla Inc. issues 1,000 shares of $1 stated value common stock having a fair value of $20 per share, and 1,000 shares of $1 par value preferred stock having no established fair value, for a lump sum of $30,000. (a) How would Twilla allocate the proceeds between the two classes of stock under the proportional method and (b) what entry wouldTwilla make to record this transaction?

A: Lump-sum receipt $30,000 Allocated to common (1,000 × $20) (20,000) Balance allocated lo preferred $10,000 B: Dr. Cash 30,000 Cr. Common stock (1,000 shares × $1) 1,000 Cr. Paid-in Capital in Excess of Par—Common Stock ($20,000 - $1,000) 19,000 Cr. Preferred stock (1,000 shares × $1) 1,000 Cr. Paid-in Capital in Excess of Par—Preferred Stock ($10,000 - $1,000) 9,000

Turtle Cove Company issued the 3 -year, $10,000, zero-interest-bearing note to Jeremiah Company. The implicit rate that equated the totalcash to be paid ($10,000 at maturity) to the present value of the futurecash flows ($7,721.80 cash proceeds at date of issuance) was 9%. (Thepresent value of $1 for 3 periods at 9% is $0.77218.) Refer to the zero-interest bearing note issued by Turtle Cove in Ex. 13.10 (a) What is the 3-yr amortization schedule, using effective-interestamortization? (b) What is the JE to record interest expense for 1st year of note?

A: Carrying value for date of issue: 7721.80 End of year 1: 0 Cash paid, 694.96 interest expense and amortized / 8416.76 carrying value End of year 2: 0 cash paid, 757.71 interest expense amortized / 9174.27 carrying value End of year 3: 0 cash paid, 825.73 interest expense and amortized / 10000 B: Dr. Interest Expense ($7,721.80 x .09) 694.96 Cr. Discount on Notes Payable 694.96

Twilla Inc. issues 1,000 shares of $1 stated value common stock having a fair value of $20 per share, and 1,000 shares of $1 par value preferred stock having a fair value of $12 per share, for a lump sum of $30,000. (a) How would Twilla allocate the proceeds between the two classes of stock under the proportional method and (b) what entry wouldTwilla make to record this transaction?

A: Fair value of common (1,000 × $20) = $20,000 Fair value of preferred (1,000 × $12) = 12,000 Aggregate fair value $32,000 Allocated to common (20000/32000) * 30000 = 18750 Allocated to prefered (12000/32000) * 30000 = 11250 B: Dr. Cash 30,000 Cr. Common Stock (1,000 × $1) 1,000 Cr. Paid-in Capital in Excess of Par—CommonStock ($18,750 - $1,000) 17,750 Cr. Preferred Stock (1,000 × $1) 1,000 Cr. Paid-in Capital in Excess of Par— PreferredStock ($11,250 - $1,000) 10,250

Vine Corporation has outstanding 1,000 shares of $1 par value commonstock and retained earnings of $50,000. If Vine declares a 10% stock dividend, itissues 100 additional shares to current stockholders (1,000 shares outstanding ×.10). The fair value of the stock at the time of the stock dividend is $130 per share. What entries should Vine make to record the stock dividend at the dateof declaration and at the date of distribution?

At date of declaration: Dr. Retained Earnings (100 × $130) 13,000 Cr. Common Stock Dividend Distributable (100 × $1) 100 Cr. Paid-in Capital in Excess of Par—Common Stock(100 × $129) 12,900 If Vine prepares a balance sheet between the dates of declaration and distribution, itreports the Common Stock Dividend Distributable account in the stockholders'equity section as an addition to common stock. At date of distribution: Dr. Common Stock Dividend Distributable 100 Cr. Common Stock 100

Rockland Steel, Inc. issued a large stock dividend by declaring a 30% stock dividend onNovember 20, distributable December 29 to stockholders of record December 12. At the dateof declaration, 1,000,000 shares, par value $10, are outstanding and with a fair value of $200per share. What entry would Rockland make at (a) the date of declaration and (b) the dateof distribution?

At date of declaration: Dr. Retained Earnings 3,000,000 Cr. Common stock dividends dist. ((1M shares*30%)*(300,000shares*$10 par) 3,000,000 At date of payment: Dr. Common stock dividend distributable 3,000,000 Cr. Common stock 3,000,000

McChesney Mines Inc. issued a "dividend" to its common stockholders of$1,200,000. The cash dividend announcement noted that stockholders shouldconsider $900,000 as income and the remainder a return of capital. How should McChesney Mines record the dividend?

At date of declaration: Dr. Retained Earnings 900,000 Dr. Paid-in Capital in Excess of Par—Common Stock 300,000 Cr. Dividends Payable 1,200,000 At date of payment: Dr. Dividends Payable 1,200,000 Cr. Cash 1,200,000

Trendler, Inc. transferred to stockholders some of its equity investmentscosting $1,250,000 by declaring a property dividend on December 28, 2024, to bedistributed on January 30, 2025, to stockholders of record on January 15, 2025. Atthe date of declaration, the securities have a fair value of $2,000,000. What entries should Trendler make to record the property dividend?

At declaration: Dr. Equity investments 750,000 Cr. Gain on investments (2M - 1.25M) 750,000 Dr. Retained Earnings 2,00,000 Cr. Property Dividends Payable 2,000,000 At date of distribution: Dr. Property Dividends Payable 2,000,000 Cr. Equity Investments 2,000,000

In 2025, Mason Company is to distribute $50,000 as cash dividends,its outstanding common stock has a par value of $400,000, and its 6percent preferred stock has a par value of $100,000. If the preferred stock is noncumulative and is fully participating:

Current year's dividend, 6% 6,000 Preferred; 24,000 Common Participating dividend of 4% 4,000 Preferred; 16,000 Common Participated determined by: Preferred 100,000*6% = 6,000 X Common 400,000*6% = 24,000 Y X or Y/(X + Y) * Participating amount (excess after first 6% dividend Rate of participation is Participating amount / Par of all participating stock