302 exam 2

Sunland Company purchased $2700000 of 9%, 5-year bonds from Ritter, Inc. on January 1, 2018, with interest payable on July 1 and January 1. The bonds sold for $2830740 at an effective interest rate of 8%. Using the effective-interest method, Sunland Company decreased the Available-for-Sale Debt Securities account for the Ritter, Inc. bonds on July 1, 2018 and December 31, 2018 by the amortized premiums of $10020 and $10380, respectively. At April 1, 2019, Sunland Company sold the Ritter bonds for $2790000. After accruing for interest, the carrying value of the Ritter bonds on April 1, 2019 was $2797440. Assuming Sunland Company has a portfolio of Available-for-Sale Debt Securities, what should Sunland Company report as a gain or loss on the bonds?

$-7440.

On May 1, 2018, Waterway Industries issued $3200000 of 7% bonds at 104, which are due on April 30, 2028. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Waterway's common stock, $15 par value, were attached to each $1000 bond. The bonds without the warrants would sell at 96. On May 1, 2018, the fair value of Waterway's common stock was $35 per share and of the warrants was $2. On May 1, 2018, Waterway should credit Paid-in Capital from Stock Warrants for

$133120

On January 1, 2018, Marigold Corp. granted Sam Wine, an employee, an option to buy 1,000 shares of Marigold Co. stock for $30 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $5220. Wine exercised his option on October 1, 2018 and sold his 1,000 shares on December 1, 2018. Quoted market prices of Marigold Co. stock in 2018 were: July 1 $32 per share October 1 $38 per share December 1 $42 per share The service period is for three years beginning January 1, 2018. As a result of the option granted to Wine, using the fair value method, Marigold should recognize compensation expense for 2018 on its books in the amount of

$1740.

At December 31, 2017 Crane Company had 207000 shares of common stock and 10800 shares of 7%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2017 or 2018. On February 10, 2019, prior to the issuance of its financial statements for the year ended December 31, 2018, Crane declared a 100% stock dividend on its common stock. Net income for 2018 was $950000. In its 2018 financial statements, Crane's 2018 earnings per common share should be (rounded to the nearest penny)

$2.11

Sheffield Corp. had 309000 shares of common stock issued and outstanding at December 31, 2017. During 2018, no additional common stock was issued. On January 1, 2018, Sheffield issued 399000 shares of nonconvertible preferred stock. During 2018, Sheffield declared and paid $182000 cash dividends on the common stock and $147000 on the nonconvertible preferred stock. Net income for the year ended December 31, 2018, was $963000. What should be Sheffield's 2018 earnings per common share, rounded to the nearest penny?

$2.64

Sheridan Company had 607000 shares of common stock outstanding on January 1, issued 898000 shares on July 1, and had income applicable to common stock of $2944000 for the year ending December 31, 2018. Earnings per share of common stock for 2018 would be (rounded to the nearest penny)

$2.79.

Bonita Industries 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 $34). The price paid for 800, $1,000 bonds with the warrants attached was $825000. The market price of the Bonita bonds without the warrants was $716000, and the market price of the warrants without the bonds was $83800. What amount should be allocated to the warrants?

$86440

Sandhill Company purchased bonds with a face amount of $900000 between interest payment dates. Sandhill purchased the bonds at 101, paid brokerage costs of $14600, and paid accrued interest for three months of $24600. The amount to record as the cost of this long-term investment in bonds is

$923600.

A requirement for a security to be classified as held-to-maturity is

-The investor has the ability to hold the security to maturity. **All of these are required. -The investor has the positive intent to hold to maturity. -The security must be a debt security.

Which of the following is not correct in regard to trading securities?

-They are held with the intention of selling them in a short period of time. -Unrealized holding gains and losses are reported as part of net income. -Any discount or premium is amortized. ***All of these choices are correct.

Jordan Company purchased ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%. One step in calculating the issue price of the bonds is to multiply the principal by the table value for

20 periods and 4% from the present value of 1 table

Vaughn Manufacturing had 799000 shares of common stock outstanding on January 1, issued 130000 shares on May 1, purchased 60000 shares of treasury stock on September 1, and issued 53000 shares on November 1. The weighted average shares outstanding for the year is

874500

On August 1, 2018, Cullumber Company acquired 1090, $1000, 9% bonds at 97 plus accrued interest. The bonds were dated May 1, 2018, and mature on April 30, 2024, with interest paid each October 31 and April 30. The bonds will be added to Cullumber's available-for-sale portfolio. The preferred entry to record the purchase of the bonds on August 1, 2018 is

Debt Investments 1057300 Interest Revenue 24525 Cash 1081825

Which of the following is an advantage of a restricted-stock plan?

It never becomes completely worthless.

The distribution of stock rights to existing common stockholders will increase paid-in capital at the Date of Issuance of the Rights Date of Exercise of the Rights

No Yes

A convertible bond issue should be included in the diluted earnings per share computation as if the bonds had been converted into common stock, if the effect of its inclusion is: Dilutive Antidilutive

Yes No

Due to the importance of earnings per share information, it is required to be reported by all: Public Companies Nonpublic Companies

Yes No

On July 1, 2018, an interest payment date, $152000 of Bonita Industries bonds were converted into 3050 shares of Bonita Industries common stock each having a par value of $45 and a market value of $54. There is $6700 unamortized discount on the bonds. Using the book value method, Bonita would record

a $8050 increase in paid-in capital in excess of par.

Watt Company purchased $300,000 of bonds for $315,000. If Watt intends to hold the securities to maturity, the entry to record the investment includes

a debit to Debt Investments at $315,000.

Koehn Corporation accounts for its investment in the common stock of Sells Company under the equity method. Koehn Corporation should ordinarily record a cash dividend received from Sells as

a reduction of the carrying value of the investment.

Compensation expense resulting from a compensatory stock option plan is generally

allocated to the periods benefited by the employee's required service.

In computing earnings per share for a simple capital structure, if the preferred stock is cumulative, the amount that should be deducted as an adjustment to the numerator (earnings) is the

annual preferred dividend.

Debt securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses that are included as other comprehensive income and as a separate component of stockholders' equity are

available-for-sale debt securities

A corporation issues bonds with detachable warrants. The amount to be recorded as paid-in capital is preferably

based on the relative market values of the two securities involved.

In computations of weighted average of shares outstanding, when a stock dividend or stock split occurs, the additional shares are

considered outstanding at the beginning of the earliest year reported.

Investments in debt securities are generally recorded at

cost including brokerage and other fees.

Under the equity method of accounting for investments, an investor recognizes its share of the earnings in the period in which the

earnings are reported by the investee in its financial statements.

A correct valuation for debt securities

held-to-maturity at amortized cost

When an investment in a held-to-maturity security is transferred to an available-for-sale debt security, the carrying value assigned to the available-for-sale debt security should be

its fair value at the date of the transfer.

When an investor's accounting period ends on a date that does not coincide with an interest receipt date for bonds held as an investment, the investor must

make an adjusting entry to debit Interest Receivable and to credit Interest Revenue for the amount of interest accrued since the last interest receipt date

Securities which could be classified as held-to-maturity are

municipal bonds

Equity securities acquired by a corporation which are accounted for by recognizing unrealized holding gains or losses are

securities where a company has holdings of less than 20%

A reclassification adjustment is reported in the

statement of comprehensive income as other comprehensive income.

Corporations issue convertible debt for two main reasons. One is the desire to raise equity capital that, assuming conversion, will arise when the original debt is converted. The other is

that many corporations can obtain debt financing at lower rates.

The conversion of preferred stock into common stock requires that any excess of the par value of the common shares issued over the carrying amount of the preferred being converted should be

treated as a direct reduction of retained earnings.