Question 1
During its first year of operations, Collin Raye Corporation had the following transactions pertaining to its common stock.
Jan. 10 / Issued80,000shares for cash at $6per share.Mar. 1 / Issued5,000shares to attorneys in payment of a bill for $35,000for services rendered in helping the company to incorporate.
July 1 / Issued30,000shares for cash at $8per share.
Sept. 1 / Issued60,000shares for cash at $10per share.
(a) / Prepare the journal entries for these transactions, assuming that the common stock has a par value of $5per share.
(b) / Prepare the journal entries for these transactions, assuming that the common stock is no-par with a stated value of $3per share.
(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
(a) / Jan. 10 / / /
Mar. 1 / / /
July 1 / / /
Sept. 1 / / /
(b) / Jan. 10 / / /
Mar. 1 / / /
July 1 / / /
Sept. 1 / / /
Question 1 to 7
Bonds PayableBuildings
Cash
Common Stock
Common Stock Dividend Distributable
Debt Investments
Dividends Payable
Discount on Bonds Payable
Equipment
Equity
Equity Investments
Income Summary
Land
Legal Fees Expense
No Entry
Organization Expense
Paid-in Capital from Treasury Stock
Paid-in Capital in Excess of Par - Common Stock
Paid-in Capital in Excess of Par - Preferred Stock
Paid-in Capital in Excess of Stated Value - Common Stock
Preferred Stock
Property Dividends Payable
Retained Earnings
Treasury Stock
Unamortized Bond Issue Costs
Unrealized Holding Gain or Loss - Income
Question 2
Lindsey Hunter Corporation is authorized to issue50,000shares of $5par value common stock. During 2014, Lindsey Hunter took part in the following selected transactions.
1. / Issued5,000shares of stock at $45per share, less costs related to the issuance of the stock totaling $7,000.2. / Issued1,000shares of stock for land appraised at $50,000. The stock was actively traded on a national stock exchange at approximately $46per share on the date of issuance.
3. / Purchased500shares of treasury stock at $43per share. The treasury shares purchased were issued in 2010 at $40per share.
(a) / Prepare the journal entry to record item 1.
(b) / Prepare the journal entry to record item 2.
(c) / Prepare the journal entry to record item 3 using the cost method.
(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
(a) / / /
(b) / / /
(c) / / /
Question 3
The stockholders’ equity accounts of G.K. Chesterton Company have the following balances on December 31, 2014.
Common stock, $10 par,300,000shares issued and outstanding / $3,000,000Paid-in capital in excess of par—common stock / 1,200,000
Retained earnings / 5,600,000
Shares of G.K. Chesterton Company stock are currently selling on the Midwest Stock Exchange at $37.
Prepare the appropriate journal entries for each of the following cases.(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
(b) / A stock dividend of 100% is (1) declared and (2) issued.
(c) / A2-for-1 stock split is (1) declared and (2) issued.
No. / Account Titles and Explanation / Debit / Credit
(a)(1) / / /
(a)(2) / / /
(b)(1) / / /
(b)(2) / / /
(c)(1) / / /
(c)(2) / / /
Question 4
Anne Cleves Company reported the following amounts in the stockholders’ equity section of its December 31, 2013, balance sheet.
Preferred stock,10%, $100par (10,000 shares authorized,2,000shares issued) / $200,000Common stock, $5par (100,000shares authorized,20,000shares issued) / 100,000
Additional paid-in capital / 125,000
Retained earnings / 450,000
Total / $875,000
During 2014, Cleves took part in the following transactions concerning stockholders’ equity.
2. / Purchased1,700shares of its own outstanding common stock for $40per share. Cleves uses the cost method.
3. / Reissued700treasury shares for land valued at $30,000.
4. / Issued500shares of preferred stock at $105per share.
5. / Declared a10% stock dividend on the outstanding common stock when the stock is selling for $45per share.
6. / Issued the stock dividend.
7. / Declared the annual 2014 $10per share dividend on preferred stock and the $2per share dividend on common stock. These dividends are payable in 2015.
(a)Prepare journal entries to record the transactions described above.(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
1. / / /
2. / / /
3. / / /
4. / / /
5. / / /
6. / / /
7. / / /
(b)Prepare the December 31, 2014, stockholders’ equity section. Assume 2014 net income was $330,000.(Enter account name only .Do not provide any descriptive information.)
Stockholders’ Equity
December 31, 2014
/ $
: /
/ $
Question 5
Aubrey Inc. issued $4,000,000of10%, 10-year convertible bonds on June 1, 2014, at98plus accrued interest. The bonds were dated April 1, 2014, with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis.
On April 1, 2015, $1,500,000of these bonds were converted into30,000shares of $20par value common stock. Accrued interest was paid in cash at the time of conversion.
(b) / Prepare the entry to record the conversion on April 1, 2015. (Book value method is used.) Assume that the entry to record amortization of the bond discount and interest payment has been made.
(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. $3,500.)
(a) / / /
(b) / / /
Question 6
Illiad Inc. has decided to raise additional capital by issuing $170,000face value of bonds with a coupon rate of10%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at the rate of one warrant for each $100 bond sold. The value of the bonds without the warrants is considered to be $136,000, and the value of the warrants in the market is $24,000. The bonds sold in the market at issuance for $152,000.
(a)What entry should be made at the time of the issuance of the bonds and warrants?(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
(b)Prepare the entry if the warrants were nondetachable.(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Question 7
Illiad Inc. has decided to raise additional capital by issuing $170,000 face value of bonds with a coupon rate of 10%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at the rate of one warrant for each $100 bond sold. The value of the bonds without the warrants is considered to be $136,000, and the value of the warrants in the market is $24,000. The bonds sold in the market at issuance for $152,000.
If the warrants were nondetachable, would the entries be different? Discuss.
Question 8
On January 1, 2013, Dagwood Company purchased at par12% bonds having a maturity value of $300,000. They are dated January 1, 2013, and mature January 1, 2018, with interest receivable December 31 of each year. The bonds are classified in the held-to-maturity category.
(a) / Prepare the journal entry at the date of the bond purchase.(b) / Prepare the journal entry to record the interest received for 2013.
(c) / Prepare the journal entry to record the interest received for 2014.
(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
(a) / Jan. 1, 2013 / / /
(b) / Dec. 31, 2013 / / /
(c) / Dec. 31, 2014 / / /
Question 8 to 12
Accumulated Other Comprehensive LossBonds Payable
Cash
Call Option
Common Stock
Cost of Goods Sold
Debt Investments
Dividend Revenue
Dividend Receivable
Equity Investments
Fair Value Adjustment
Futures Contract
Gain on Sale of Investments
Gain on Settlement of Call Option
Gain on Settlement of Put Option
Interest Expense
Interest Receivable
Interest Revenue
Inventory
Loss on Impairment
Loss on Sale of Investments
Loss on Settlement of Call Option
Loss on Settlement of Put Option
No Entry
Notes Payable
Paid-in Capital in Excess of Par - Common Stock
Put Option
Recovery of Loss from Impairment
Retained Earnings
Revenue from Investment
Sales Revenue
Swap Contract
Unrealized Holding Gain or Loss - Equity
Unrealized Holding Gain or Loss - Income
Question 9
On January 1, 2013, Hi and Lois Company purchased12% bonds, having a maturity value of $300,000, for $322,744.44. The bonds provide the bondholders with a10.00% yield. They are dated January 1, 2013, and mature January 1, 2018, with interest receivable December 31 of each year. Hi and Lois Company uses the effective-interest method to allocate unamortized discount or premium. The bonds are classified as available-for-sale category. The fair value of the bonds at December 31 of each year-end is as follows.
2013 / $320,500 / 2016 / $310,0002014 / $309,000 / 2017 / $300,000
2015 / $308,000
(a) / Prepare the journal entry at the date of the bond purchase.
(b) / Prepare the journal entries to record the interest received and recognition of fair value for 2013.
(c) / Prepare the journal entry to record the recognition of fair value for 2014.
(Round answers to 2 decimal places, e.g. 2,525.25. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
(a) / Jan. 1, 2013 / / /
(b) / Dec. 31, 2013 / / /
(To record interest received)
Dec. 31, 2013 / / /
(c) / Dec. 31, 2014 / / /
Question 10
On December 21, 2013, Bucky Katt Company provided you with the following information regarding its trading securities.
December 31, 2013Investments (Trading) / Cost / Fair Value / Unrealized Gain (Loss)
Clemson Corp. stock / $20,000 / $19,000 / $(1,000 / )
Colorado Co. stock / 10,000 / 9,000 / (1,000 / )
Buffaloes Co. stock / 20,000 / 20,600 / 600
Total of portfolio / $50,000 / $48,600 / (1,400 / )
Previous fair value adjustment balance / 0
Fair value adjustment—Cr. / $(1,400 / )
During 2014, Colorado Company stock was sold for $9,400. The fair value of the stock on December 31, 2014, was Clemson Corp. stock—$19,100; Buffaloes Co. stock—$20,500.
(b) / Prepare the journal entry to record the sale of the Colorado Company stock during 2014.
(c) / Prepare the adjusting journal entry needed on December 31, 2014.
(Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
(a) / / /
(b) / / /
(c) / / /
Question 11
Parent Co. invested $1,000,000in Sub Co. for 25% of its outstanding stock. Sub Co. pays out40% of net income in dividends each year.
Use the information in the following T-account for the investment in Sub to answer the following questions.
1,000,000
110,000
44,000
(a)How much was Parent Co.’s share of Sub Co.’s net income for the year?
(b)How much was Parent Co.’s share of Sub Co.’s dividends for the year?
(c)What was Sub Co.’s total net income for the year?