Comprehensive Examination

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Description

Problem D-I — Treasury Stock

The stockholders’ equity section of Carey Co.’s balance
sheet at December 31, 2012, was as follows:

Common
stock–$10 par (authorized 1,000,000 shares,

issued
and outstanding 600,000 shares) $ 6,000,000

Paid-in
capital in excess of par 1,500,000

Retained
earnings 3,250,000

$10,750,000

Instructions

Prepare journal entries (1, 2, and 4) and show
proper disclosure (3) to reflect the following treasury stock transactions
showing how each is accounted for under the cost method. (Show computations.)

1. On January 4, 2013, having idle cash, Carey
Co. repurchased 20,000 shares of its out-standing stock for $500,000.

2. On March 4, Carey sold 5,000 of these
reacquired shares at $28 per share.

3. Show the proper disclosures in the
stockholders’ equity section of the balance sheet issued at the end of the
first quarter, March 31, 2013. Assume net income of $100,000 during the first
quarter.

4. On June 30, 2013 the firm sold 10,000 of the
reacquired shares for $21 per share.

*Problem D-II — Cash Dividends

Bell Company has stock outstanding as follows: Common,
$10 par value per share, 140,000 shares; Preferred, 5%; $100 par value per
share, 8,000 shares. The Preferred is cumulative and participating up to an
additional 4% of par; two years are in arrears (not including the current
year); and the total amount of cash dividends declared for both classes of
stock is $230,000.

Instructions

Prepare the entry for the dividend declaration,
separating the dividend into the common and preferred portions.


Problem D-III — Stock Dividends and Stock Splits

Stock dividends and stock splits are common forms
of corporate stock distribution to stockholders.

Consider each
of the numbered statements. You are to decide whether it:

A. Applies to both stock dividends
and stock splits.

B. Applies to neither.

C. Applies to stock splits only.

D. Applies to stock dividends only.

E. Applies to stock splits
effected in the form of a dividend only.

F. Applies to both stock splits effected
in the form of a dividend and a stock dividend.

(In each
instance, the issuing company has only one class of stock.)

Instructions

Print next to the number of each statement below,
the single capital letter of the description which applies to the statement.

Statements

____ 1. The
distribution is a multiple as contrasted to a fraction of the number of shares
previously outstanding.

____ 2. The
total number of shares outstanding is increased.

____ 3. The
individual stockholder’s share of net assets is increased.

____ 4. There
is no transfer between retained earnings and capital stock accounts, other than
to the extent occasioned by legal requirements.

____ 5. There
is no change in the total stockholders’ equity of the issuing corporation.

____ 6. The
retained earnings available for dividends are increased.

____ 7. Retained
earnings in the amount of the distribution are transferred to capital stock, in
some instances in an amount in excess of that required by the laws of the state
of incorporation.

____ 8. Subsequent
per-share earnings, if any, are decreased.

____ 9. The
par (or stated value) of the stock is unchanged.


Problem D-IV — Earnings Per Share Concepts

Indicate which of the following securities would
be included in the computation of “basic earnings per share,” and
which would be included in the computation of “diluted earnings per
share.” Place a “B” before those which affect only basic EPS, a
“D” before those which affect only diluted EPS, a “BD”
before those which affect both basic and diluted EPS, and an “N”
before those securities which do not affect EPS computations. Assume that,
where applicable, the appropriate securities are dilutive.

____ 1. Warrants
to purchase additional common shares.

____ 2. Common
stock.

____ 3. Nonconvertible
debenture bonds.

____ 4. Convertible,
noncumulative preferred stock.

____ 5. Cumulative,
nonconvertible preferred stock.

____ 6. Convertible
bonds.

____ 7. Executive
stock options.

____ 8. Notes
payable.

Problem D-V — Earnings Per Share Computations

Jones, Inc. has net income (30% tax rate) of $1,200,000
for 2013, and an average number of shares outstanding during the year of
500,000 shares. The corporation issued $2,000,000 par value of 10-year, 9% convertible
bonds on January 1, 2011 at a $180,000 discount. The convertible bonds are convertible
into 70,000 shares of common stock. Assume the company uses the straight-line
method for amortizing bond discount.

Instructions

Compute the
earnings per share data, excluding any notes if required.


Problem D-VI — Basic and Diluted Earnings Per
Share

Assume that
the following data relate to Rosen, Inc. for the year 2013:

Net
income (30% tax rate) $3,000,000

Average
common shares outstanding 2013 1,000,000 shares

10%
cumulative convertible preferred stock:

Convertible
into 80,000 shares of common $1,600,000

8%
convertible bonds; convertible into 75,000

shares
of common $2,500,000

Stock
options:

Exercisable
at the option price of $25 per share;

average
market price in 2013, $30 84,000 shares

Instructions

Compute (a)
basic earnings per share, and (b) diluted earnings per share.

Problem D-VII —Available-for-Sale Equity Investments

On January 2, 2012, Norwin Company purchased
1,000 shares of Oslo Company common stock for $30,000. The stock has a par
value of $10 and is part of the total stock outstanding of 20,000 shares of Oslo
Company. Norwin Company intends the stock to be available for sale. Total
stockholders’ equity of Oslo Company on January 2, 2012 was $600,000.

Instructions

Prepare necessary journal entries on the books of
Norwin Company for the following transactions. If no entry is required, write
“none” in the space provided. (Round all calculations to the nearest
cent.)

(a) January
2, 2012: Norwin purchases the shares described above.

(b) December
31, 2012: Norwin receives a $.75 per share dividend from Oslo, and Oslo
announces a net income for 2012 of $250,000.

(c) December
31, 2012: According to The Wall Street
Journal
, Oslo common is selling for $27 per share. Norwin’s management
views this decline as being only temporary in nature. Oslo’s common is Norwin’s only
available-for-sale security.

(d) February
15, 2013: Norwin sells 500 of the shares purchased on January 2, 2012 at $32 per
share.


Problem D-VIII — Trading Securities

The
information below relates to Milton Company’s trading securities in 2012 and 2013.

(a) Prepare the journal entries for the
following transactions.

January
1, 2012 Purchased $300,000 par
value of GLF Company bonds at 97 plus accrued interest. The bonds pay interest
annually at 9% each December 31. Broker’s commission was $3,000.

September
1, 2012 Sold $150,000 par value of GLF
Company bonds at 94 plus accrued interest. Broker’s commission, taxes, and fees
were $1,500.

September
5, 2012 Purchased 5,000 shares of Hayes,
Inc. common stock for $30 per share. The broker’s commission on the purchase
amounted to $2,000.

December
31, 2012 Make the appropriate entry for
the GLF Company bonds.

December
31, 2012 The market prices of the
trading securities at December 31 were: Hayes, Inc. common stock, $31 per
share; and GLF Company bonds, 99. Make the appropriate entry.

July
1, 2013 Milton sold 1/2 of
the Hayes, Inc. common stock at $32 per share. Broker’s commissions, taxes, and
fees were $1,000.

December
1, 2013 Milton purchased 600 shares of
Ramirez, Inc. common stock at $45 per share. Broker’s commission was $500.

December
31, 2013 Make the appropriate entry for
the GLF Company bonds.

December
31, 2013 The market prices of the
trading securities at December 31 were: Hayes, Inc. common stock, $34 per
share; GLF Company bonds, 98; and Ramirez, Inc. common stock, $47 per share. Make
the appropriate entry.

(b) Present the financial statement disclosure
(balance sheet and income statement) of Milton Company’s transactions in
trading securities for each of the
years 2012 and 2013. Appropriate financial statement subheadings must be
disclosed.


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