Ans Doc 114


1.ABC Co sold equipment that have a 2 year warranty. Based on experience, warranty costs should be 4% of sales.
Sales during 2012, the first year of selling the product, were $8,000,000. Actual warranty expenditures during the year were $52,500.
Prepare journal entries that summarize the sales (all sales are on credit)
and any aspect of the warranty that should be recorded in 2012.
what is the liability that should be reported on 12/31/12?
2.When would a gain contingency be reported?
3.On 8/1/12 Zeta Company issues a $900,000 non interest bearing note
6 month note to the bank. Interest is discounted at 10%.
Prepare all journal entries related to the note (issuance, year end, repayment)
What is the effective rate of interest on the note?
4.A $10 million 10 year bond is sold for $8,640,967. The stated rate of interest is 6%,
Interest is paid semiannually. The market rate of interest is 8%
The bond is sold on 1/1/12.
Prepare the journal entries to issue the bond and the first two interest payments. Use the effective interest method.
What is the carrying value of the bond on 12/31/12?
If the bond is retired on 1/1/13 for 102 what is the journal entry to
record the retirement?
5.On 1/1/2012 a company sells at 6% $1,000,000 bond at 102. It is a 10 year
bond and interest is paid semiannually.
Using the straight line method, record interest payments for 2012.
6.What is a zero coupon bond and when is interest recorded?
7.What is the difference between a capital and operating lease?
Discuss a sales type lease and a financing agreement.
8. On 1/1/12 A Company leases equipment from B Company under a 3 year operating lease agreement. The lease calls for semiannual payment of $15,000 on 6/30 and 12/31
each year. B purchased the equipment for $90,000 and it is expected to have a useful life of 5 years with no residual value.
Make the appropriate journal entries from the inception of the lease through 12/31/12 for the lessee.
Make the appropriate journal entries from the inception of the lease through 12/31/12 for the lessor.
9 On 1/1/12 C Company leased equipment from D Company . The term is 3 years and lease payments are $40,000 on January 1 of each year. The interest rate is 8%.
The present value of an ordinary annuity, 3 periods, 8% is 2.7833
The present value of an annuity due, 3 periods, 8% is 2.5771
Assume straight line depreciation for 3 yrs.
There is no residual value
Prepare all of the lessor’s journal entries for 2012 and 2013
Prepare all of the lessee’s journal entries for 2012 and 2013
10. EFG Corp had the following information in 2012
pretax accounting income 20,000
permanent differences – fines 3,000 not tax deductible
financial depreciation(included in acctng income) 2,000
total tax depreciation 10,000
tax rate 30%
What is the journal entry to record taxes and there is no tax rate change anticipated?
Assume that it is known that tax rates will go up to 35% in 2014.
Assume that financial depreciation is $2000 for 5 years while tax depreciation of $10,000
is all taken in 2012. There are no other differences between book and
taxable income.
What is the deferred tax asset or liabiltiy on 12/31/12?
11. What is a deferred tax asset?
Why would you use a valuation account with respect to the deferred asset?
A company properly uses the accrual basis on its financial statements
when recording prepaid rent. On its tax return, the company deducts rent whenpaid. If the company makes a large prepayment in 2012 will this result in a deferred tax liability or asset?
12. The following information is available for TacoTime, Inc for 2012.
PBO Plan Assets beginning balance $ 1,20,000 beginning balance $ 85,000
sevice cost $ 20,000 actual return $ 6,000
interest cost $ 9,000 annual contribution $ 15,000
benefits paid $ (11,000) benefits paid $ (11,000)
ending balance $ 1,38,000 ending balance $ 95,000
The expected return on plan assets is 8%.
Prepare the journal entries to record pension expense AND the employer’s contribution to the pension plan.
What amount will appear on the employer’s balance sheet regarding the pension plan?
Is it an asset or liability? (or both?)
If the actual gain on plan assets is signicantly lower than the expected gain, how would pension expense be affected? Would it be increased or decreased? How would you determine what a “significant” difference is? What is meant by the “corridor”?
13. Stockholder’s Equity for Northwestern Co (NW) is as follows:
Common Stock, $1 par $ 10,00,000
Additional PIC – common stock $ 60,00,000
Peferred Stock, $100 par $ 5,00,000
Retained Earnings $ 8,00,000
NW bought 100,000 shares of its common stock for $9 per share.
The stock will be retired. Please prepare the journal entry to record
the retirement.
14 Stockholder’s Equity for Southeastern Co (SE) is as follows:
Common Stock, $1 par $ 10,00,000
Additional PIC – common stock $ 60,00,000
Peferred Stock, $100 par $ 5,00,000
Retained Earnings $ 8,00,000
SE had the following treasury stock transactions:
SE bought 50,000 shares of common stock for $9 per share.
SE bought another 100,000 shares of common stock for $6 per share.
SE later resold 80,000 share of treasury stock at $10 per share.
Please make journal entries for all treasury stock transactions. SE uses
the FIFO method to account for treasury stock.
15 Stockholder’s Equity for North Co is as follows:
Common Stock, $2 par $ 10,00,000
Additional PIC – common stock $ 80,00,000
Retained Earnings $ 8,00,000
North had a 2 for 1 stock split on 2/12/2012
On 4/1 a 5% dividend was declared and paid.
On 7/1 a $1 per share dividend was declared and paid
The market price of the stock was $10 throughout 2012.
Please prepare journal entries for the above stock transactions.
16. On 1/1/10, ABC Co granted 20,000 of stock options to certain executives.
The options are exercisable no sooner than 12/31/13 and expire on 1/1/15.
Each option can purchase one share of $1 par common stock for $15 per share.
An option pricing model estimates the fair value of the option to be $6 on the
date of grant.
What amount should ABC recognize as compensation expense for 2010 if no forfeiture is anticipate?
In 2011, ABC believes that 15% of the total options will be forfeited.
What amount should ABC record as compensation expense in 2011 and 2012?
17. EPS weighted average date transaction
01-Jan 1,000,000 shares outstanding
31-Mar 2 for 1 stock split
01-Apr 3,000,000 additional shares sold
01-Dec required 500,000 shares
What is the weighted average number of share outstanding?
18. A company has $1000 stock options outstanding which are exercisable at $30 each.
the average market price is $50 per share. Determine the number of shares that should be included in diluted EPA.
19. X Company has 100,000 shares of common stock and $500,000 in 6% bonds convertible into 10 shares for each $1,000 bond. Net income is $100,000 . What is diluted EPS assuming a tax rate of 34%.
20. C Corp has 100,000 shares of common stock and 10,000 shares of convertible preferred stock, convertible into 5 shares of common stock for each share of preferred. Net income for the year is$100,000. Dividends paid during the year were $20,000 on preferred and
$30,000 on common. What are basic and diluted EPS? Assume a tax rate of 34%.
21. For accounting purposes, we classify accounting changes into 3 categories. What are they?
Provide a short description of each.
22. What action is required when it is discovered that a five year insurance permium of $50,000 two years ago was debited to insurance expense?
Suppose the error described above was not discovered until 6 years later. What action will the discovery of the error require?
24 ACE Accountants, Inc assets 2012 2011
cash 33 20
accounts receivable 48 50
allowance -4 -3
dividend receivable 3 2
inventory 55 50
long term investments 15 10
land 70 40
building and equipment 225 250
accum depreciation -25 -50
total assets 420 369
accounts payable 13 20
salaries payable 2 5
interest payable 4 2
income tax payable 7 8
note payable 30 0
bond payable 95 70
discount on bond -2 -3
149 102
shareholder’s equity
common stock 210 200
additional paid in capital 24 20
retained earnings 45 47
treasury stock -8 0
271 267
liabilites & se 420 369
Income Statement -2012
Sales revenue 200
Dividend revenue 3 203
cost of goods sold 120
salaries expense 25
depreciation exp 5
bad debt exp 1
interest exp 8
loss of sale of building 3
income tax exp 16 178
net income 25
Other information
a building that cost $40,000 was 3/4s depreciated. It was sold for $7,000.
common stock from an unrelated company was purchased for $5,000 as a
long term investment property was acquired by issuing a 13% 7 year $30,000 note payable to the seller new equipment was purchased for $15,000 cash
on 1/1/12 $25,000 of bonds were sold at face value ib 1/5/12 ACE issued a 5% stock dividend (1000 shares). The market price of the $10 par value common stock was $14 per share at that time.
Prepare a cash flow using the direct method.
You must identify cash received from customer and from dividends
cash paid for inventory, salaries etc. Make sure the cash flow works.