Problem 1 (10 Points)
Jackson Browne Corporation is authorized to issue 1,000,000 shares of $1 par value common stock. During 2021, its first year of operation, the company has the following stock transactions.
Jan. 1 Paid the state $10,000 for incorporation fees.
Jan. 15 Issued 400,000 shares of stock at $5 per share.
July 2 Issued 110,000 shares of stock for land. The land had an asking price of $800,000. The stock is currently selling on a national exchange at $6 per share.
Sept. 5 Purchased 12,000 shares of common stock for the treasury at $7 per share.
Dec. 6 Sold 8,000 shares of the treasury stock at $10 per share.
Instructions
Indicate the accounts and their respective balances that are increased and/or decreasedin the above transactions for Jackson Browne Corporation.You must show your computations to receive full credit.
Problem 2 (12 Points)
The following items were shown on the balance sheet of ELO Corporation on December 31, 2021:
Stockholders’ equity
Paid-in capital
Capital stock
Common stock, $6 par value, 800,000 shares
authorized; ______ shares issued and ______ outstanding……………….. $3,000,000
Additional paid-in capital
In excess of par…………………………………………………………………………….. 1,500,000
Total paid-in capital………………………………………………………………….. 4,500,000
Retained earnings……………………………………………………………………………………. 1,850,000
Total paid-in capital and retained earnings……………………………………….. 6,350,000
Less: Treasury stock (10,000 shares)………………………………………………………… 50,000
Total stockholders’ equity……………………………………………………………….. $6,300,000
Instructions
Complete the following statements and show your computations.
(a) The number of shares of common stock issued was _______________.
(b) The number of shares of common stock outstanding was ____________.
(c) The total sales price of the common stock when issued was $____________.
(d) The cost per share of the treasury stock was $_______________.
(e) The average issue price of the common stock was $______________.
(f) Assuming that 25% of the treasury stock is sold at $8 per share, the balance in the Treasury Stock account would be $_______________.
Problem 3 (10 Points)
Journey Company had the following transactions involving notes payable.
October1, 2021 Borrows $300,000 from Washington State Bank by signing a 6-month, 4% note.
Dec. 31, 2021 prepares the adjusting entry.
April 1, 2022 Pays principal and interest to Washington State Bank.
Instructions
Indicate the accounts and their respective balances that are increased and/or decreased for each of the above transactions.You must show all your calculations to receive full credit.
Problem 4 (18 Points)
Turner Inc. is considering two alternatives to finance its construction of a new $6 million plant.
(a) Issuance of 600,000 shares of common stock at the market price of $10 per share.
(b) Issuance of $6 million, 4% bonds at par.
Instructions
Complete the following table.You MUST show your work to receive full credit.
Issue Stock Issue Bonds
Income before interest and taxes $20,000,000 $20,000,000
Interest expense from bonds
_________ _________
Income before income taxes $ $
Income tax expense (30%) _________ _________
Net income $________ $________
Outstanding shares _________ 4,000,000
Earnings per share _________ _________
Problem 5 (15 Points)
The Band Company was organized on January 1. During the first year of operations, the following expenditures and receipts were recorded in random order in the account, Land.
Expenditures
- Cost of real estate purchased as a plant site
(land $230,000 and old building $30,00) $ 260,000
- Accrued real estate taxes paid at the time of the purchase of the real estate. 45,000
- Cost of demolishing building to make land suitable for construction of a new
building. 35,000
- Architect’s fees on building plans. 30,000
- Installation cost of fences around the building 25,000
- Excavation costs for new building. 50,000
- Cost of filling and grading the land. 45,000 8. Full payment to building contractor. 840,000
- Cost of parking lots and driveways. 65,000
- Real estate taxes paid for the current year on the land. 20,000
Total $1,415,000
Receipts
- Proceeds from salvage of demolished building 20,000
Total $20,000
Instructions
Analyze the foregoing transactions using the following tabular arrangement. Insert the number of each transaction in the Item space and insert the amounts in the appropriate columns and show the total for each column.
Land
ItemLand Buildings Improvements Other Account Title
Problem 6 (10 points)
Bob Seger Company purchased equipment on January 1, 2021 for $120,000. It is estimated that the equipment will have a $30,000 salvage value at the end of its 10-year useful life. It is also estimated that the equipment will produce 90,000 units over its 10-year life.You must show all of your calculations.
Instructions
Answer the following independent questions.
- Compute the amount of depreciation expense for the year ended December 31, 2021, using the straight-line method of depreciation.
- If 20,000 units of product were produced in 2021, what is the book value of the equipment at December 31, 2021? The company uses the units-of-activity depreciation method.
Problem 7 (10 Points)
(a) Cinema Paradiso Company purchased equipment on January 1, 2013 for $150,000 and estimated a $30,000 salvage value at the end of the equipment’s 10-year useful life. At December 31, 2019, there was $84,000 in the Accumulated Depreciation account for this equipment using the straight-line method of depreciation. On March 31, 2020, the equipment was sold for $70,000.
Indicate the accounts that are increased and/or decreased and by which amount to remove the equipment from the books of Cinema Paradiso Company on March 31, 2020.You must show all of your calculations to receive full credit
(b) Assume the same facts as above, except the equipment was sold for $50,000
Indicate which accounts are increased and /or decreased and by which amountto record the disposition of the machine. You must show all your work to receive full credit.
.
Problem 8 (20 Points)
The Killers Pesticide Company had a $600 balance in Allowance for Doubtful Accounts at December 31, 2022, before the current year’s provision for uncollectible accounts. An aging of the accounts receivable revealed the following:
Estimated Percentage
Uncollectible
Current Accounts $120,000 2%
1–30 days past due 60,000 4%
31–60 days past due 50,000 6%
61–90 days past due 30,000 15%
Over 90 days past due 20,000 25%
Total Accounts Receivable $280,000
Instructions: You MUST show your work to receive full credit.
(a) Determine the desired ending balance for Allowance for Doubtful Accounts
(b) Determine the amount to recognize as bad debt expense on December 31, 2022.
(c)What amount that is reported as the net balance for Accounts Receivable as of December 31, 2022 on the Balance Sheet?
Problem 9 (20 point)
Muse Company uses the periodic inventory method and had the following inventory information available:
Units Unit Cost Total Cost
1/1 Beginning Inventory 500 $5 $2,500
1/20 Purchase 700 $6 4,200
7/25 Purchase 900 $7 6,300
10/20 Purchase 600 $9 5,400
2,700 $18,400
A physical count of inventory on December 31 revealed that there were 700 units on hand.
Instructions
Answer the following independent questions and show computations supporting your answers.
- Assume that the company uses the FIFO method. The value of the ending inventory at December 31 is $__________.
- Assume that the company uses the Average-Cost method. The value of the ending inventory on December 31 is $__________.
- Assume that the company uses the LIFO method. The value of the ending inventory on December 31 is $__________.
- Determine the difference in the amount of income that the company would have reported if it had used the FIFO method instead of the LIFO method. Would income have been greater or less and by how much?
Problem 10 (20 Points)
Match the items below by entering the appropriate code letter in the space provided.
- Cumulativedividend F. Declaration date
- Face value G. Market interest rate
- Legal capital H. Payout ratio
- Treasury stock I. Maturity date
- Premium on bonds payable J. Bond certificate
- Discount on bonds payable
——— 1. Occurs when the contractual rate of interest is less than the market rate of interest.
——- 2. A legal document that indicates the face value of the bonds and other data.
—— 3. The rate investors demand for loaning funds to a corporation.
____ 4. The amount that must be retained in the business for the protection of creditors.
——— 5. The time that the final payment on a bond is due from the bond issuer.
____ 6. The date the board of directors formally declares a dividend.
——- 7. Amount of principal due at the maturity date of the bond.
____ 8. Preferred stockholders have a right to receive current and unpaid prior-year dividends before common stockholders receive any dividends.
____ 9. Measures the percentage of earnings distributed in the form of dividends to common stockholders.
____ 10. Corporation’s own stock that has been reacquired by the corporation but not retired.
Problem 11 (20 Points)
Ennio Morricone Company had the following normal account balances on selected accounts:
Sales Revenue $2,500,000
Advertising Expense 65,000
Sales Returns and Allowances 41,500
Cost of Goods Sold 1,100,000
Common stock 250,000
Dividends 150,000
Freight-Out 35,000
Income tax expense 30,000
Interest Expense 80,000
Salaries and Wages Expense 670,000
Utilities Expense 15,000
Depreciation Expense 120,000
Interest Revenue 40,000
Inventory 67,000
Retained earnings 535,000
Insurance Expense 20,000
Sales Discounts 18,500
Instructions
- Use the above information to prepare a multiple-step income statement for the year ended December 31, 2022.
Problem 12 (35 Points)
The financial statements of Spertramp Company appear below:
Supertramp COMPANY
Comparative Balance Sheet
December 31, 2022
_____________________________________________________________________________
Assets 2022 2021
Cash ……………………………………………………………………………………. $ 120,200 $ 128,400
Debt investments …………………………………………………………………… 148,000 100,000
Accounts receivable (net) ……………………………………………………….. 235,600 205,600
Inventory ……………………………………………………………………………….. 252,000 231,000
Property, plant and equipment (net) …………………………………………. 1,298,000 1,040,600
Total assets …………………………………………………………………….. $2,053,800 $1,705,600
Liabilities and stockholders’ equity
Accounts payable ………………………………………………………………….. $ 320,000 $ 290,800
Income taxes payable …………………………………………………………….. 87,000 84,000
Bonds payable ………………………………………………………………………. 440,000 400,000
Common stock ……………………………………………………………………… 580,000 600,000
Retained earnings ………………………………………………………………….. 626,800 330,800
Total liabilities and stockholders’ equity………………………………… $2,053,800 $1,075,600
Supertramp COMPANY
Income Statement
For the Year Ended December 31, 2022
Net sales (all on credit) …………………………………………………………… $3,781,080
Cost of goods sold …………………………………………………………………. 2,117,080
Gross profit …………………………………………………………………………… 1,664,000
Expenses
Selling and administrative expenses …………………………………… $1,000,000
Interest expense ………………………………………………………………. 44,000
Total expenses …………………………………………………………… 1,044,000
Income before income taxes …………………………………………………… 620,000
Income tax expense ……………………………………………………………….. 184,000
Net income ……………………………………………………………………………. $ 436,000
Additional information:
- Cash dividends of $120,000 were declared and paid on common stock in 2022.
- Weighted-average number of shares of common stock outstanding during 2022 was 100,000 shares.
- Net cash provided by operating activities during 2022 was $450,000
- Capital expenditures during 2022 were $270,000.
Instructions
Using the financial statements and additional information, compute the following ratios for the Supertramp Company for 2022. You Must show all your computations to receive full credit.
- Gross profit rate _________.
- Return on common stockholders’ equity _________.
- Return on assets _________.
- Accounts receivable turnover _________.
- Average collection period _________.
- Inventory turnover _________.
- Days in inventory _________.
- Times interest earned _________.
- Asset turnover _________.
- Free cash flow _________
- Profit margin______________
- Payout ratio————————
