ACC 202

Exam 1

Name_______________________________________________________

For computational problems you must show your work to get
full credit.

1. Assume that on January 1, 2011, Weber Company issues
bonds with a face value of $300,000 that pay 10 percent interest, semiannually
(5 percent per period) and mature in 10 years. Assume that the market interest
rate at the date of issuance is 6 percent (3 percent per semiannual period).

Compute the
price of the bond.

Record the journal entry for the
bond issuance on January 1, 2011.

2. Assume
that on April 1, 2011, Austin Company issues, at 103 plus accrued interest,
10-year bonds with a face value of $100,000 and a face interest rate of 6
percent. Interest is paid semiannually on June 30 and December 31. The bond is
dated January 1, 2011, and will be due on January 1, 2021. Record the journal
entry for the bond issuance on March 1, 2011.

3.
Assume that a company issues
bonds with a $100,000 face value at 100 and must pay $4,000 of costs associated
with the issuance. Assume that the life of the bond is five years and that the
company amortizes bond issue costs on a straight-line basis each semiannual
period. What is the amount of cash received from the bond issuance?

4.
Assume that a bond is issued with the following characteristics:

Date of bonds: Issued January 1, 2008; maturity date:
January 1, 2013; face value: $200,000; face interest rate: 10 percent paid
semiannually (5 percent per period); market interest rate: 8 percent (4 percent
per semiannual period); issue price: $216,222; bond premium is amortized using
the straight-line method of amortization. What is the amount of bond premium
amortization for the June 30, 2008, adjusting entry?

What is the carrying value of the bonds on June 30, 2009?

5. Assume
that a bond is issued with the following characteristics:

Date of bonds: Issued January 1, 2010; maturity date: January
1, 2015; face value: $200,000; face interest rate: 10 percent paid semiannually
(5 percent per period); market interest rate: 8 percent (4 percent per
semiannual period); issue price: $216,222; bond premium is amortized using the
effective interest method of amortization. What is the amount of bond premium
amortization for the June 30, 2010, adjusting entry?

6.

Bonds with the following characteristics are retired on January 1, 2005,
at 104:

Issue date: January 1, 2004; maturity date: January 1,
2009; face value: $300,000; bond issue costs: $5,000, amortized semiannually
using the straight-line method of amortization. The unamortized bond discount
is $7,500 as of January 1, 2005. What is the amount of the gain or loss on the
bond retirement?

7. On January 1, 2005, Crowe Company issued
$1,000,000 of bonds with a face rate of 6 percent that are due to mature
January 1, 2011. The market rate of interest was 10 percent at the date of
issuance, which resulted in a discount of $100,000. Crowe incorrectly used the
straight-line method of amortization for the bond discount instead of the
effective interest method. How is the carrying value of the bonds affected by
the error?

At
12/31/2005 At
12/31/2010

a. Overstated
Understated

b. Understated Overstated

c. Overstated No effect

d. Understated No effect

8. On June 30, 2011,
Rix Corporation had $10,000,000 of 9 percent bonds outstanding. The maturity
date is June 30, 2016.. Interest is paid semiannually every June 30 and
December 31. All the bonds were redeemed on June 30, 2011, at 98. At the time
of the bond redemption, there was unamortized bond discount of $60,000 and
unamortized bond issue costs of $100,000. What is the amount of the gain on the
bond redemption?

9.

Fill in items 1 through 14 with the best answer provided in items A
through N below. Use each letter only once.

____ 1. Bond
indenture ____ 8. Premium on bonds

____ 2. Coupon
bonds ____ 9. Callable bonds

____ 3. Discount
on bonds ____ 10.
Serial bonds

____ 4. Market
interest rate ____11. Debenture bonds

_____ 5. Face value ____12. Issue price

____ 6. Convertible
bonds ____13.
Zero-coupon bonds

____ 7. Mortgage
bonds ____14. Face interest rate

A.	The bond contract that sets forth the specific elements of the agreement, including the loan amount, referred to as the face value, or par value, of the bond; the interest rate; and the maturity date.
B.	The amount to be paid at maturity. Also called par value.
C.	Bonds that are not backed by specific collateral but are based on the general creditworthiness of the company.
D.	Bonds that are backed by specific collateral. These bonds may be referred to as secured bonds.
E.	Bonds that bear coupons for each interest payment. When an interest payment is due, the bondholder removes the applicable coupon and presents it to a bank for payment.
F.	Bonds that do not require periodic interest payments and instead promise to pay a fixed amount at the maturity date.
G.	Bonds that the investor can exchange for stock at a specified conversion rate.
H.	Bonds that can be retired by the issuer for a specified price before their maturity date.
I.	Bonds issued on the same date that have differing maturity dates.
J.	The rate of interest to be paid to bondholders each period, as specified in the bond indenture. Also called coupon rate or stated rate.
K.	The rate of interest used for present value calculations in valuing the bond.
L.	The present value of the cash flows for the bond.
M.	The excess of face value over issue price.
N.	The excess of issue price over face value.

11. Wheat Corp.
issued 10,000 shares of its $1 par value common stock for a building. The
building was listed for sale at $500,000. Wheat’s common stock is currently
selling for $45 per share. Prepare the journal entry.

12.

A company reissued at $20 per share 100 shares of
treasury stock that it had previously acquired for $26 per share and there was
not any Paid-in Capital from Treasury Stock. Prepare the journal entry.

13.
The journal entry to record a8 percent stock dividend to common stockholders
when the market price of the stock is $40 per share and there are 100,000
shares of $1 par value stock outstanding is

14. Arp Corp.’s outstanding capital stock at December 15, 2011,
consisted of the following:

30,000 shares of 5 percent cumulative preferred stock, par value $10
per share, fully participating as to dividends. No dividends were in arrears.

200,000 shares of common stock, par value $1 per share.

On December 15,
2011, Arp declared dividends of $100,000. What was the amount of dividends
payable to Arp’s common stockholders?

1. At December 31, 2008 and 2009, Carr Corp. had outstanding 4,000
   shares of $100 par value, 6 percent cumulative preferred stock and 20,000
   shares of $10 par value common stock. At December 31, 2008, dividends in
   arrears on the preferred stock were $12,000. Cash dividends declared in
   2009 totaled $44,000. Of the $44,000, what amounts were payable on each
   class of stock?

16. In 2009, Seda Corp. acquired 6,000 shares
of its $1 par value common stock at $36 per share. During 2010, Seda issued 2,000
of these shares at $40 per share. Seda uses the cost method to account for its
treasury stock.

A)
Prepare the journal entry upon purchase of the treasury stock.

17.
Cameron Inc. is a defendant in a lawsuit. The company’s attorney has indicated
that a loss is probable. The amount of loss can be estimated to be within a
range of $5 million to $15 million. How should Cameron handle this situation on
the books? Prepare a journal entry if necessary.

18. Mill Co.’s trial balance included the
following account balances at December 31, 2010:

Accounts Payable $15,000

Bonds Payable, due 2011 25,000

Discount on Bonds Payable, due 2011
3,000

Dividends Payable, 1/31/11 8,000

Notes Payable, due 2012 20,000

What amount should be included in the current liabilities section of
Mill’s December 31, 2010, balance sheet?
Show computations.

19. During 2008, Gum Co. introduced a new product
carrying a two-year warranty against defects. The estimated warranty costs
related to dollar sales are 2 percent within twelve months following the sale
and 4 percent in the second twelve months following the sale. Sales and actual
warranty expenditures for the years ended December 31, 2008 and 2009, are as
follows:

	Sales		Actual Warranty Expenditures
2008	$250,000		$2,250
2009	250,000		7,500
	$500,000		$9,750

What amount should Gum report as estimated warranty liability on its
December 31, 2009 balance sheet?

20. Edson Corp. signed a three-month, zero-interest-bearing note on November
1, 2011 for the purchase of $150,000 of inventory. The face value of the note
was $153,000. Edson used a “Discount on Note Payable” account to initially
record the note and the discount will be amortized equally over the 3-month
period. What is the adjusting entry made
at December 31, 2011?