ACC 423 Final Exam

ACC 423 Final Exam
Question 1:
Buttercup Corporation issued 250 shares of $11 par value common stock for
$4,125. Prepare Buttercup’ journal entry.
Question 2:Wilco
Corporation has the following account balances at December 31, 2012.
Common stock, $5 par value $511,670
Treasury stock 95,260
Retained earnings 2,400,840
Paid-in capital in excess of par 1,320,150
Prepare Wilco’s December 31, 2012, stockholders’ equity section
Question 3:Woolford
Inc. declared a cash dividend of $1.38 per share on its 2.22 million
outstanding shares. The dividend was declared on August 1, payable on September
9 to all stockholders of record on August 15. Prepare the journal entries
necessary on those three dates.
Question 4:The
outstanding capital stock of Pennington Corporation consists of 3,100 shares of
$109 par value, 6% preferred, and 5,700 shares of $52 par value common.
Assuming that the company has retained earnings of $83,000, all of which is to
be paid out in dividends, and that preferred dividends were not paid during the
2 years preceding the current year, state how much each class of stock should
receive under each of the following conditions.
Question 5:Martinez
Company’s ledger shows the following balances on December 31, 2012.
5% Preferred stock-$10 par value, outstanding 22,480 shares $224,800
Common stock-$100 par value, outstanding 33,720 shares 3,372,000
Retained earnings 708,120
Assuming that the directors decide to declare total dividends in the amount of
$298,984, determine how much each class of stock should receive under each of
the conditions stated below. One year’s dividends are in arrears on the
preferred stock.
Question 6:On
January 1, 2012, Barwood Corporation granted 5,040 options to executives. Each
option entitles the holder to purchase one share of Barwood’s $5 par value
common stock at $50 per share at any time during the next 5 years. The market
price of the stock is $72 per share on the date of grant. The fair value of the
options at the grant date is $154,000. The period of benefit is 2 years.
Prepare Barwood’s journal entries for January 1, 2012, and December 31, 2012
and 2013.
Question 7:Rockland
Corporation earned net income of $340,800 in 2012 and had 100,000 shares of
common stock outstanding throughout the year. Also outstanding all year was
$908,800 of 10% bonds, which are convertible into 18,176 shares of common.
Rockland’s tax rate is 40 percent. Compute Rockland’s 2012 diluted earnings per
share.
Question 8:DiCenta
Corporation reported net income of $250,000 in 2012 and had 50,000 shares of
common stock outstanding throughout the year. Also outstanding all year were
5,410 shares of cumulative preferred stock, each convertible into 2 shares of
common. The preferred stock pays an annual dividend of $5 per share. DiCenta’
tax rate is 40%. Compute DiCenta’ 2012 diluted earnings per share.
Question 9:Ferraro,
Inc. established a stock appreciation rights (SAR) program on January 1, 2012,
which entitles executives to receive cash at the date of exercise for the
difference between the market price of the stock and the pre-established price
of $24 on 5,050 SARs. The required service period is 2 years. The fair value of
the SAR’s are determined to be $6 on December 31, 2012, and $13 on December 31,
2013.
Question 10:
Hillsborough Co. has an available-for-sale investment in the bonds of Schuyler
with a carrying (and fair) value of $88,020. Hillsborough determined that due
to poor economic prospects for Schuyler, the bonds have decreased in value to
$57,020. It is determined that this loss in value is other-than temporary.
Prepare the journal entry, if any, to record the reduction in value.
Question 11:
Capriati Corporation made the following cash purchases of securities during
2012, which is the first year in which Arantxa invested in securities.
1. On January 15, purchased 11,700 shares of Gonzalez Company’s common stock at
$43.55 per share plus commission $2,574.
2. On April 1, purchased 6,500 shares of Belmont Co.’s common stock at $67.60
per share plus commission $4,381.
3. On September 10, purchased 9,100 shares of Thep Co.’s preferred stock at
$34.45 per share plus commission $6,383.
On May 20, 2012, Capriati sold 3,900 shares of Gonzalez Company’s common stock
at a market price of $45.50 per share less brokerage commissions, taxes, and
fees of $3,705. The year-end fair values per share were: Gonzalez $39.00,
Belmont $71.50, and Thep $36.40. In addition, the chief accountant of Capriati
told you that Capriati Corporation plans to hold these securities for the long
term but may sell them in order to earn profits from appreciation in prices.
Question
12:(Journal Entries for Fair Value and
Equity Methods)
Presented below are two independent situations.
Prepare all necessary journal entries in 2012 for each situation.

Situation 1
Hatcher Cosmetics acquired 10% of the 207,400 shares of common stock of Ramirez
Fashion at a total cost of $15 per share on March 18, 2012. On June 30, Ramirez
declared and paid a $80,200 cash dividend. On December 31, Ramirez reported net
income of $123,500 for the year. At December 31, the market price of Ramirez
Fashion was $18 per share. The securities are classified as available-for-sale.
Situation 2
Holmes, Inc. obtained significant influence over Nadal Corporation by buying
25% of Nadal’s 30,800 outstanding shares of common stock at a total cost of $9
per share on January 1, 2012. On June 15, Nadal declared and paid a cash
dividend of $43,800. On December 31, Nadal reported a net income of $90,500 for
the year.
Question 13:
(Equity Method) Gator Co. invested $1,380,000 in Demo Co. for 25% of its
outstanding stock. Demo Co. pays out 40% of net income in dividends each year.
Use the information in the following T-account for the investment in Demo to
answer the following questions.
Question 14:
(Fair Value and Equity Method Compared). Gregory Inc. acquired 20% of the
outstanding common stock of Handerson Inc. on December 31, 2012. The purchase
price was $1,320,000 for 50,000 shares. Handerson Inc. declared and paid an
$0.87 per share cash dividend on June 30 and on December 31, 2013. Handerson
reported net income of $741,000 for 2013. The fair value of Handerson’s stock
was $32 per share at December 31, 2013.
Question 15:
(Call Option). On January 2, 2012, Jones Company purchases a call option for
$450 on Merchant common stock. The call option gives Jones the option to buy
1,000 shares of Merchant at a strike price of $50 per share. The market price
of a Merchant share is $50 on January 2, 2012 (the intrinsic value is therefore
$0). On March 31, 2012, the market price for Merchant stock is $60 per share,
and the time value of the option is $200.
Question 16:
In 2012, Amirante Corporation had pretax financial income of $207,000 and
taxable income of $166,400. The difference is due to the use of different
depreciation methods for tax and accounting purposes. The effective tax rate is
40%. Compute the amount to be reported as income taxes payable at December 31,
2012.
Question 17:
At December 31, 2012, Fell Corporation had a deferred tax liability of
$732,802, resulting from future taxable amounts of $2,155,300 and an enacted
tax rate of 34%. In May 2013, a new income tax act is signed into law that
raises the tax rate to 42% for 2013 and future years. Prepare the journal entry
for Fell to adjust the deferred tax liability.
Question 18:
AMR Corporation (parent company of American Airlines) reported the following
for 2009 (in millions).
Service cost $405
Interest cost on P.B.O 736
Return on plan assets 825
Amortization of service cost 29
Amortization of loss 66
Compute AMR Corporation’s 2009 pension expense (in millions).
Question 19:
For Warren Corporation, year-end plan assets were $2,094,700. At the beginning of
the year, plan assets were $1,762,400. During the year, contributions to the
pension fund were $120,000, and benefits paid were $200,000. Compute Warren’s
actual return on plan assets.
Question 20:
For 2010, Campbell Soup Company had pension expense of $48 million and
contributed $296 million to the pension fund. Prepare Campbell Soup Company’s
journal entry to record pension expense and funding.
Question 21:
Lahey Corp. has three defined-benefit pension plans as follows.
Pension Assets
(at Fair Value) Projected Benefit
Obligation
Plan X $637,500 $504,000
Plan Y 902,200 739,900
Plan Z 584,600 713,200
How will Lahey report these multiple plans in its financial statements?
Question 22:
For 2012, Sampsell Inc. computed its annual postretirement expense as $278,680.
Sampsell’s contribution to the plan during 2012 was $185,750. Prepare
Sampsell’s 2012 entry to record postretirement expense.
Question 23:
Wertz Corporation decided at the beginning of 2012 to change from the
completed-contract method to the percentage-of-completion method for financial
reporting purposes. The company will continue to use completed-contract method
for tax purposes. For years prior to 2012, pre-tax income under the two methods
was as follows: percentage-of-completion $143,000, and completed-contract
$65,800. The tax rate is 32%. Prepare Wertz’s 2012 journal entry to record the
change in accounting principle.
Question 24:
In 2012, Bailey Corporation discovered that equipment purchased on January 1,
2010, for $50,000 was expensed at that time. The equipment should have been
depreciated over 5 years, with no salvage value. The effective tax rate is 29%.
Prepare Hiatt’s 2012 journal entry to correct the error.
Question 25:
At January 1, 2012, Beilder Company reported retained earnings of $2,027,300.
In 2012, Beilder discovered that 2011 depreciation expense was understated by
$442,300. In 2012, net income was $931,270 and dividends declared were
$204,310. The tax rate is 38%. Complete the 2012 retained earnings statement
for Beilder Company.
Question 26:
Simmons Corporation owns stock of Armstrong, Inc. Prior to 2012, the investment
was accounted for using the equity method. In early 2012, Simmons sold part of
its investment in Armstrong, and began using the fair value method. In 2012, Armstrong
earned net income of $81,100 and paid dividends of $90,400. Prepare Simmons’s
entries related to Armstrong’s net income and dividends, assuming Simmons now
owns 11% of Armstrong’s stock.
Question 27:
Manno Corporation has the following information available concerning its
postretirement benefit plan for 2012.
Service cost $53,750
Interest cost 58,360
Actual return on plan assets 40,190
Compute Manno’s 2012 postretirement expense
Question 28:
Ravonette Corporation issued 310 shares of $13 par value common stock and 130
shares of $47 par value preferred stock for a lump sum of $17,500. The common
stock has a market price of $22 per share, and the preferred stock has a market
price of $98 per share. Prepare the journal entry to record the issuance
Question 29:
Garfield Company purchased, as a held-to-maturity investment, $82,400 of the
9%, 8-year bonds of Chester Corporation for $73,919, which provides an 11%
return. Prepare Garfield’s journal entries for (a) the purchase of the
investment and (b) the receipt of annual interest and discount amortization.
Assume effective interest amortization is used.
Question 30:
Clydesdale Corporation has a cumulative temporary difference related to
depreciation of $606,600 at December 31, 2012. This difference will reverse as
follows: 2013, $43,100; 2014, $264,300; and 2015, $299,200. Enacted tax rates
are 34% for 2013 and 2014, and 40% for 2015. Compute the amount Clydesdale
should report as a deferred tax liability at December 31, 2012