Description
On January 1, 2014, PVP Co. issued 6 % bonds with a face value of $400,000 for $345,644 when the market interest rate was 8 %. The bonds are due in 10 years, and interest is payable every June 30 and December 31.
1. Prepare an amortization schedule through 6/30/2015. Round all numbers to the nearest dollar.
2. Prepare the journal entry for the bond issue on 1/1/2014.
3. Prepare the journal entry for the interest payment on 6/30/2014.
Question 2 (3 points20 minutes)
PVP Inc. has $800,000 of 8% preferred stock and $1,200,000 of common stock outstanding, each having a par value of $10 per share. No dividends have been paid or declared during 2012 and 2013. As of December 31, 2014, PVP wishes to distribute $488,000 in dividends.
Show computations for how much will the preferred and common stockholders receive under each of the following
assumptions:
(a) The preferred is noncumulative and nonparticipating.
(b) The preferred is cumulative and nonparticipating.
(c) The preferred is cumulative and fully participating.
Question 3 (4 points15 minutes)
Select the best answer for each of the following and write the letter corresponding to your answer in the answer sheet provided.
1. With respect to a short term obligations expected to be refinanced, which of the following statements is
correct?
a. A company demonstrates the ability to consummate the refinancing only if it has actually refinanced the
short term obligation by issuing a long term obligation
b. A company demonstrates the ability to consummate the refinancing only if it has actually refinanced the
short term obligation by issuing equity securities
c. A company demonstrates the ability to consummate the refinancing only if it has entered into a financing
agreement that clearly permits the company to refinance the debt on a long term basis
d. A company demonstrates the ability to consummate the refinancing by any one of the actions described in
a, b, or c above.
2.
a.
b.
c.
d.
3.
a.
b.
c.
d.
With respect to accounting for sick pay which of the following statements is correct?
Employers must accrue sick pay benefits if the sick pay benefits vest or accumulate
Employers must accrue sick pay benefits if the sick pay benefits vest
Employers must accrue sick pay benefits if the sick pay benefits accumulate but do not vest
None of the above are correct
Under what conditions an employer must accrue a liability for vacation pay?
Vacation pay benefits can be reasonably estimated.
Only if vacation pay benefits are vested.
Only if vacation pay benefits are accumulated but not vested.
Vacation pay benefit-rights are accumulated or vested.
4.
Which of the following statements is correct?
a. Pending court cases with a probable favorable outcome is an example of a contingent liability.
b. Losses related to pending litigation are always accrued.
c. Obligations related to premiums and coupons offered to customers, is an example of a gain contingency.
d. Obligations related to guarantee and warranty costs, is an example of a loss contingency.
5. In a troubled debt restructuring the debt is settled by a transfer of an asset. If the asset’s fair market value is
higher than its book value and less than the carrying amount of the debt, the debtor would recognize
a. No gain or loss on the settlement.
b. A loss on the disposition of the asset.
c. A loss on the settlement.
d. A gain on the disposition of the asset
6. Which of the following statements is correct with respect to Treasury Stock?
a.
b.
c.
d.
When a company purchases treasury stock it is recorded as an asset
When a company records the purchase of treasury stock, the entry reduces assets but increases
stockholders’ equity
When a company records the purchase of treasury stock, the entry reduces both assets and
stockholders’ equity
When a company records the purchase of treasury stock, the entry reduces stockholders’ equity but
increases assets
7. A small stock dividend
a.
b.
c.
d.
Has no effect on retained earnings.
Reduces retained earnings.
Reduces total stockholders equity.
Increases total stockholders equity
8. In determining diluted earnings per share under the if converted method, interest expense on dilutive
convertible debt should be
a. Disregarded.
b.Added back to net income net of taxes.
c.Deducted from net income net of taxes.
d.None of the above are correct.
Question 4 (5 points20 minutes)
Show computations for each of the following, and clearly show your final answer using the answer sheet provided.
1. During 2014, PVP Co. introduced a new product carrying a two-year warranty against defects. The
estimated warranty costs related to dollar sales are 3% within 12 months following sale and 4% in the second 12Â months following sale. Sales and actual warranty expenditures for the years ended December 31, 2014 and 2015Â are as follows:
2014
2015
Actual Warranty
Expenditures
$10,000
30,000
$40,000
Sales
$ 900,000
1,000,000
$1,900,000
Show computation for an estimated warranty liability on 12/31/2015.
.
2. To increase its sales, PVP Co. included a coupon redeemable for a prize in each package of cereal sold
beginning on July 1, 2014. Each prize costs PVP $1.00, and five coupons must be presented to receive a prize.
2 of 3
PVP estimated that only 50% of the coupons issued would be redeemed. For the six months ended December 31, 2014 the following information is available:
Packages of cereal sold
Prizes purchased
Coupons redeemed
2,000,000
150,000
500,000
Show computations for the estimated liability for prize claims outstanding on December 31, 2014.
3. On January 2, 2014, PVP Co. issued 6 % bonds with a face value of $400,000 when the market interest rate was 8 %. The bonds are due in 10 years, and interest is payable every June 30 and December 31. Use the following present value and present value annuity tables to select applicable factors.
Present value of an ordinary
At 3% 10 periods=8.5302
At 6% 10 periods=7.3601
annuity of $1
At 4% 20 periods=13.5903
At 8% 10 periods=6.7101
Present value of $1
At 3% 10 periods=0.7441
At 6% 10 periods=0.5584
At 4% 20 periods=0.4564
At 8% 10 periods=0.4632
Show computations to calculate the selling price of the bond (round your final answer to the nearest dollar).
4. On January 1, 2014, PVP Corporation had 1,000,000 shares of common stock outstanding. On March 1, the corporation issued 150,000 new shares to raise additional capital. On July 1, the corporation declared and issued a 2-for-1 stock split. On October 1, the corporation purchased on the market 600,000 of its own outstanding shares and retired them. Compute the weighted average number of shares to be used in computing earnings per share for 2014.
5. On January 1, 2014, VAP Co issued at par $15,000 of its 5% bonds, convertible into 1,000 shares of VAP
Co common stock. No bonds were converted during 2014.
Throughout 2014, VAP Co had 1,500 shares of common stock outstanding. The net income for 2014 was $18,000. VAP Co tax rate is 35%.
No potentially dilutive securities other than the convertible bonds were outstanding during 2014. Show
calculations to determine VAP Co diluted earnings per share for 2014.
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