ACCT Problems

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Question 5

(Preferred Dividends)

Martinez Company’s ledger shows the following balances on December 31, 2012.

5% Preferred stock-$10 par value, outstanding 22,280 shares

$222,800

Common stock-$100 par value, outstanding 33,420 shares

3,342,000

Retained earnings

701,820

Assuming that the directors decide to declare total dividends in the amount of $296,324, 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.

(a)

The preferred stock is cumulative and fully participating.

Preferred

Common

$

$

(b)

The preferred stock is noncumulative and nonparticipating.

Preferred

Common

$

$

(c)

The preferred stock is noncumulative and is participating in distributions in excess of a 7% dividend rate on the common stock.(Note: Do not round rate of participation. Round final answers to zero decimal places, e.g. 12,310.)

Preferred

Common

$

$

On January 1, 2012, Barwood Corporation granted 5,480 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 $73 per share on the date of grant. The fair value of the options at the grant date is $157,800. The period of benefit is 2 years. Prepare Barwood’s journal entries for January 1, 2012, and December 31, 2012 and 2013.(If no entry is required, enter No Entry as the description and 0 as the amount.)

Date

Description/Account

Debit

Credit

1/1/12

12/31/12

12/31/13

Question 7

Rockland Corporation earned net income of $420,000 in 2012 and had 100,000 shares of common stock outstanding throughout the year. Also outstanding all year was $1,120,000 of 10% bonds, which are convertible into 22,400 shares of common. Rockland’s tax rate is 40 percent. Compute Rockland’s 2012 diluted earnings per share. (Round answer to 2 decimal places, e.g. 2.13.)

$3.98 per share

Question 8

DiCenta Corporation reported net income of $283,000 in 2012 and had 50,000 shares of common stock outstanding throughout the year. Also outstanding all year were 5,710 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.(Round answer to 2 decimal places, e.g. 5.23.)

$

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 $25 on 5,180 SARs. The required service period is 2 years. The fair value of the SAR’s are determined to be $7 on December 31, 2012, and $14 on December 31, 2013.

Compute Perkins’ compensation expense for 2012.

$

Compute Perkins’ compensation expense for 2013.

$

Question 11

(Equity Securities Entries)

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.

(a)

Prepare the journal entries to record the above three security purchases.

Description/Account

Debit

Credit

January 15, 2012

April 1, 2012

September 10, 2012

(b)

Prepare the journal entry for the security sale on May 20.(List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

Description/Account

Debit

Credit

(c)

Compute the unrealized gains or losses and prepare the adjusting entries for Capriati on December 31, 2012.

Unrealized gain or loss(For negative numbers use either a negative sign preceding the number, e.g. -45 or parenthesis, e.g. (45).)

$

Description/Account

Debit

Credit

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