Problem 1 - Schuss Inc. issued $5,876,400 of 10%, 10-year convertible bonds on June 1, 2012, at 97 plus accrued interest. The bonds were dated April 1, 2012, with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2013, $1,958,800 of these bonds were converted into 30,200 shares of $18 par value common stock. Accrued interest was paid in cash at the time of conversion.
(a) Prepare the entry to record the interest expense at October 1, 2012. Assume that accrued interest payable was credited when the bonds were issued.
(b) Prepare the entry to record the conversion on April 1, 2013. (The book value method is used.) Assume that the entry to record amortization of the bond discount and interest payment has been made.
Problem 2 - Martinez Company's ledger shows the following balances on December 31, 2012. Preferred Stock (5%; $10 par value, outstanding 20,410 shares) $ 204,100 Common Stock ($100 par value, outstanding 30,770 shares) 3,077,000 Retained Earnings 633,900
Assuming that the directors decide to declare total dividends in the amount of $271,400, 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.
(b) The preferred stock is noncumulative and nonparticipating.
(c) The preferred stock is noncumulative and is participating in distributions in excess of a 6% dividend rate on the common stock.
Problem 3 - The following data were taken from the balance sheet accounts of Wickham Corporation on December 31, 2012.
Current assets $557,000
Debt investments 641,000
Common stock (par value $10) 679,000
Paid-in capital in excess of par-common stock 152,100
Retained earnings 847,000
Prepare the required journal entries for the following unrelated items.
(a) A 5% stock dividend is (1) declared and (2) distributed at a time when the market price is $41 per share.
(b) The par value of the capital stock is reduced to $2 with a 5-for-1 stock split.
(c) A dividend is declared January 5, 2013, and paid January 25, 2013, in bonds held as an investment. The bonds have a book value of $93,960 and a fair value of $125,670.
Problem 4 - Weisberg Corporation has 10,140 shares of $100 par value, 6% preferred stock and 51,000 shares of $9 par value common stock outstanding at December 31, 2012. Answer the questions in each of the following independent situations.
(a) If the preferred stock is cumulative and dividends were last paid on the preferred stock on December 31, 2009, what are the dividends in arrears that should be reported on the December 31, 2012, balance sheet?
How should dividends be reported?
(b) If the preferred stock is convertible into 8 shares of $9 par value common stock and 3,300 shares are converted, what entry is required for the conversion assuming the preferred stock was issued at par value?