Assignment

Part 1

1) Monthly sales were $200,000. It was estimated that 4% of the units sold would have to be replaced under warranty. On the date of sale the company should record a debit to:
A) Sales for $8,000
B) Warranty Expense for $8,000
C) Warranty Payable for $8,000
D) No entry is required since the actual liability amount is not known.

2) Warranty expense should be recorded in the period:
A) immediately following the period in which the product is sold
B) that the product is paid for by the customer
C) the product is sold
D) that the product sold is repaired or replaced

3) A company has a probable loss that can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. Under IFRS, what amount of loss contingency should be accrued?
A) zero
B) the maximum amount of the range
C) the minimum amount of the range
D) the midpoint amount of the range

4) Over the life of a bond, the interest expense is the ________.
A) difference between the selling price and the amount repaid less interest payments
B) difference between the selling price and the amount repaid plus interest payments
C) total cash interest payments to the bondholders
D) total cash paid to the bondholders over the life of the bonds

5) Given the following information from an amortization table, compute the effective interest expense and the carrying value for the next line of the table:

A) Effective Interest $388; Carrying Value $39,252
B) Effective Interest $412; Carrying Value $39,252
C) Effective Interest $412; Carrying Value $38,428
D) Effective Interest $388; Carrying Value $38,428

6) Given the following information from an amortization table, compute the effective interest expense, discount amortization, and the carrying value for the next line of the table:

A) Effective Interest $47,714; Discount Amortization $5,714; Carrying Value $687,344
B) Effective Interest $47,340; Discount Amortization $5,340; Carrying Value $681,630
C) Effective Interest $47,340; Discount Amortization $5,340; Carrying Value $676,290
D) Effective Interest $47,714; Discount Amortization $5,340; Carrying Value $676,290

7) ABC Corp issued $500,000 of 6%, 10-year bonds on January 2, 2016 for par. The company incurred $50,000 in bond issue costs. What is the correct amount of bond issue expense to be recorded each semi-annual interest period using GAAP?
A) $1,250
B) $5,000
C) $2,500
D) Unable to determine without amortization table.

8) DEF Corp. decided to go into the market to repurchase bonds before their due date. The following are the balances of the accounts on the date of the retirement:

Bonds Payable $5,000,000
Bond Discount $30,000
Unamortized Bond Issue Cost $49,000
Cash Paid for Bonds $4,898,000

What is the gain or loss on the early extinguishment of the bonds?
A) $23,000 gain
B) $79,000 loss
C) $83,000 loss
D) No gain or loss is recognized.

9) CFI, Inc. has 67,000 shares authorized, 52,000 issued, and 12,000 shares of treasury stock. ________ shares are outstanding, and ________ shares are unissued.
A) 15,000; 40,000
B) 12,000; 55,000
C) 55,000; 12,000
D) 40,000; 15,000

10) James Company issues 1,700 shares of common stock with a $3 par value. The issue price of the stock is $13 per share. What is the journal entry required to record the issuance of the shares?

A)

B)

C)

D)

11) When accounting for cash dividends, a formal accounting entry is made for which dates?
A) The record date and payment date.
B) The declaration date and record date.
C) The ex-dividend date and declaration date.
D) The declaration date and payment date.

12) Jean Company has 70,000 shares of $3 par common stock and 25,000 shares of $18 par fully participating 7% cumulative preferred stock. The company declares cash dividends of $90,000 during the current year and there are $8,000 dividends in arrears. What will be the total dividend payment to common stockholders?
A) $90,000
B) $50,500
C) $8,000
D) $39,500

13) Custom Inc. purchased 10,000 shares of Mars Stock. It plans to hold them for a short time and then sell them at a gain. It should classify these securities as ________.
A) held-to-maturity securities
B) trading securities
C) minority securities
D) available for sale securities

14) Shell Co. purchased common shares of Company A and B for $10,000 and $10,000, respectively on 12/15. Shell Co. intends to sell these securities within 30 days. At 12/31, Investments in Company A and B had a fair value of $9,000 and $15,000, respectively. Assuming this is the first trading investment for Shell Co., what is the unrealized gain or loss for these securities and how is it reported?
A) Unrealized Loss of $4,000, Unrealized Gain of $3,000, both reported as part of Other Comprehensive Income.
B) Unrealized Loss of $4,000, Unrealized Gain of $3,000, both reported as part of Net Income.
C) Unrealized Gain of $4,000, reported as part of Other Comprehensive Income.
D) Unrealized Gain of $4,000, reported as part of Net Income.

15) MNO Company issued 410,000 shares of $6 par value stock. On August 1, MNO Company implements a two-for-one stock split. After the stock split, the total number of shares outstanding is ________ and the total par value is ________.
A) 820,000; $4,920,000
B) 410,000; $4,920,000
C) 820,000; $2,460,000
D) 205,000; $2,460,000

16) ABC Exporters purchased 40,000 of the 100,000 outstanding shares of Tiny Distributors for $10,000,000. ABC has significant influence over Tiny and will account for this investment using the equity method. During the year, Tiny declared dividends of $100,000 and reported Net Income of $820,000. What is the balance in the Investment in Tiny account at year end?
A) $9,712,000
B) $10,288,000
C) $9,632,000
D) $10,368,000

On December 15, 2013, Williams Co. sold a tract of land that cost $3,600,000 for $4,500,000. Williams appropriately uses the installment sale method of accounting for this transaction. Terms called for a down payment of $500,000 with the balance in two equal annual installments payable on December 15, 2014, and December 15, 2015. Ignore interest charges. Williams has a December 31 year-end.

17) In 2013, Williams would recognize realized gross profit of:

A. $500,000.
B. $0.
C. $900,000.
D. $100,000.

18) In 2014, Williams would recognize realized gross profit of:

A. $0.
B. $450,000.
C. $300,000.
D. $400,000.

19) In its December 31, 2013, balance sheet, Williams would report:

A. Realized gross profit of $100,000.
B. Deferred gross profit of $100,000.
C. Installment receivables (net) of $3,200,000.
D. Installment receivables (net) of $4,000,000.

20) At December 31, 2014, Williams would report in its balance sheet:

A. Realized gross profit of $500,000.
B. Deferred gross profit of $400,000.
C. Realized gross profit of $400,000.
D. Cost of installment sales $1,600,000.

Stream Enterprises sells distressed merchandise on extended credit terms. Collections on these sales are not reasonably assured, and bad debt losses cannot be reasonably predicted. It is unlikely that repossessed merchandise is in condition to be re-sold. Therefore, Stream uses the cost recovery method. Merchandise costing $30,000 was sold for $55,000 in 2012. Collections on this sale were $20,000 in 2012, $15,000 in 2013, and $20,000 in 2014.

21) In 2012, Stream would recognize gross profit of:

A. $0.
B. $25,000.
C. $8,090.
D. $8,333.

22) In 2013, Stream would recognize gross profit of:

A. $0.
B. $6,000.
C. $5,000.
D. $10,000.

23) In 2014, Stream would recognize gross profit of:

A. $0.
B. $6,000.
C. $8,000.
D. $20,000.

24) In its 2012 year-end balance sheet, Stream would report installment receivables (net) of:

A. $20,000.
B. $35,000.
C. $25,909.
D. $10,000.

25) In its 2013 year-end balance sheet, Stream would report installment receivables (net) of:

A. $0.
B. $20,000.
C. $4,000.
D. $15,000.

Part 2

Problem#1
UMUC Corporation has the following capital structure at the beginning of the year of January 1, 2015:
4% 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 - Common stock 310,000
Total paid-in capital 1,010,000
Retained earnings 740,000
Total stockholders' equity $1,750,000

Instructions

a. During the current year, the following transactions which occurred consecutively.

1. During the year, a total cash dividend of $80,000 was declared and paid to stockholders of record.
2. A 15% common stock dividend was declared. The average fair value of the common stock is $22 a share.
3. Assume that net income for the year was $540,000.
4. (a) January 15 bought 500 shares of common stock as treasury shares at $62.
(b) February 1 sold 220 shares of treasury stock at $60.
(c) March 10 sold 70 treasury shares at $68.

b. Construct the12/312015 stockholders' equity section, in the proper format, incorporating all the above information.

Round, if necessary, to the whole dollar.

Problem #2

Presented below is information related to Bowie Company.

1. Net Income for the year $350,000

2. Capital Structure

a. Cumulative 8% preferred stock, $100 par, 7,000 shares issued and outstanding all year, convertible into 7,000 shares of common stock $700,000

b. $10 par common stock, 74,000 shares issued and outstanding on January 1, 2015. $740,000

On April 1, 2015, bought 400 shares of common stock as treasury shares at $62.

On October 1, 2015, sold 120 shares of treasury stock at $60.

On December 1, 2015, sold 60 treasury shares at $68.

c. Bowie issued 8% convertible bonds at face value during $2,000,000 2014. Each $1,000 bond is convertible into 30 shares of common stock.

d. Stock options: 90,000 options to purchase 90,000 shares, exercisable at the option price of $25 per share. Average market price per share of common stock during entire year $30

e. Income tax rate 30%

Compute of earnings per common share for 2015. You MUST support your answers with computations:

(a) Basic earnings per share
(b) Diluted earnings per share.