Question #1: 40 Points
On February 1, 2013, Zandi issued 9% bonds dated February 1, 2013, with a face amount of $200,000. The bonds sold for $182,841 and mature in 20 years. The effective interest rate for these bonds was 10%. Interest is paid semiannually on July 31 and January 31. Zandi’s fiscal year is the calendar year.
1. Prepare the journal entry to record the bond issuance on February 1, 2013. 10 points
2. Prepare the entry to record interest on July 31, 2013, using the effective interest method. 10 points
3. Prepare the necessary journal entry on December 31, 2013. 10 points
4. Prepare the necessary journal entry on January 31, 2014. 10 points
Question #2: 40 Points
Gillian Co. owes $299,800 to Cylen Inc. The debt is a 10 â€“year, 11% note. Because Gillian Co. is in financial trouble, Cylen Inc. agrees to accept some property and cancel the entire debt. The property has a book value of $90,000 and a fair market value of $140,000.
a) Prepare the journal entry on Gillianâ€™s books for debt restructure. 20 points
b) Prepare the journal entry on Cylenâ€™s books for debt restructure. 20 points
Question #3: 30 Points
FASSV, Inc. acquired 30% of ISTP Corporation’s voting stock on January 1, 2014 for $800,000. During 2014, ISTP earned $320,000 and paid dividends of $200,000. FASSV’s 30% interest in ISTP gives FASSV the ability to exercise significant influence over ISTP’s operating and financial policies. During 2015, ISTP earned $400,000 and paid dividends of $120,000 on April 1 and $120,000 on October 1. On July 1, 2015, FASSV sold half of its stock in ISTP for $528,000 cash.
1. Before income taxes, what amount should FASSV include in its 2014 income statement as a result of the investment?
2. What is the carrying amount of this investment in FASSV’s December 31, 2014 balance sheet?
3. What should be the gain on sale of this investment in FASSV’s 2015 income statement?
Question #4: 40 Points
The shareholders’ equity of SiRF Company includes the items shown below. The board of directors of SiRF declared cash dividends of $3 million, $6 million, and $50 million in each of its first 3 years of operation: 2009, 2010, 2011, respectively.
Common stock, $1 par, 50,000,000 shares outstanding
Preferred stock, 6%, $100 par, 1,000,000 shares outstanding
Determine the amount of dividends per share on preferred and common stock for each of the three years. The preferred stock is cumulative and nonparticipating.
Question #5: 40 Points
On October 15, 2013, a 5% stock dividend was declared and distributed. The market value of the common stock on this date was $32 per share. Fractional share rights represented 100,000 shares. Cash was paid in lieu of issuing fractional share rights. On the date of declaration and payment, the company had 10 million shares of common stock outstanding. The par value of the common shares was $5.
Prepare any necessary journal entries to record the above events.
Question #6: 20 Points
On January 1, 2010, Meredith Corporation purchased 25% of the common shares of Pirates Company for $200,000. During the year, Pirates earned net income of $80,000 and paid dividends of $20,000.
Prepare the entries for Meredith to record the purchase and any additional entries related to this investment in pirates Company in 2010. (Equity Method)
Question #7: 60 Points
Fatahie Corporation has the following capital structure at the beginning of the year:
5% Preferred stock, $50 par value, 20,000 shares authorized,
6,000 shares issued and outstanding $ 300,000
Common stock, $10 par value, 60,000 shares authorized,
40,000 shares issued and outstanding 400,000
Paid-in capital in excess of par 110,000
Total paid-in capital 810,000
Retained earnings 440,000
Total stockholders’ equity $1,250,000
(a) Record the following transactions which occurred consecutively (show all calculations). Part a: 30 points
1. A total cash dividend of $90,000 was declared and payable to stockholders of record. Record dividends payable on common and preferred stock in separate accounts.
2. A 15% common stock dividend was declared. The average fair value of the common stock is $18 a share.
3. Assume that net income for the year was $120,000 (record the closing entry) and the board of directors appropriated $70,000 of retained earnings for plant expansion.
(b) Construct the stockholders’ equity section incorporating all the above information. Part B: 30 points
Question #8: 30 Points
On December 31, 2013, Samsung Co. is in financial difficulty and cannot pay a note due that day. It is a $750,000 note with $75,000 accrued interest payable to Bayer, Inc. Bayer agrees to forgive the accrued interest, extend the maturity date to December 31, 2013, and reduce the interest rate to 4%. The present value of the restructured cash flows is $642,000.
Prepare entries for the following:
(a) The restructure on Samsungâ€™s books.
(b) The payment of interest on December 31, 2014.
(c) The restructure on Bayerâ€™s books.
Question #9: 40 Points
It’s not unusual for one company to buy another company in order to obtain technology that the acquired company has developed or is in the process of developing.
Required:Explain the accounting treatment of purchased technology.
Question #10: 30 Points
Information concerning the capital structure of Piper Corporation is as follows:
Common stock 150,000 shares 150,000 shares
Convertible preferred stock 15,000 shares 15,000 shares
6% convertible bonds $2,400,000 $2,400,000
During 2015, Piper paid dividends of $0.60 per share on its common stock and $1.50 per share on its preferred stock. The preferred stock is convertible into 30,000 shares of common stock. The 6% convertible bonds are convertible into 75,000 shares of common stock. The net income for the year ended December 31, 2015, was $300,000. Assume that the income tax rate was 30%.
What should be the basic earnings per share for the year ended December 31, 2015,
rounded to the nearest penny?
What should be the diluted earnings per share for the year ended December 31, 2015,
rounded to the nearest penny?