1. Sweet Company’s outstanding stock consists of 1,600 shares of
noncumulative 4% preferred stock with a $100 par value and 11,600
shares of common stock with a $10 par value. During the first three
years of operation, the corporation declared and paid the following
total cash dividends.
The total amount of dividends paid to preferred and common shareholders over the three-year period is:
$19,200 preferred; $33,600 common.
$15,600 preferred; $37,200 common.
$6,400 preferred; $46,400 common.
$16,400 preferred; $36,400 common.
$12,800 preferred; $40,000 common.
2. A company issued 5-year, 8.50% bonds with a par value of $121,000. The market rate when the bonds were issued was 8.00%. The company received $123,546 cash for the bonds. Using the effective interest method, the amount of recorded interest expense for the first semiannual interest period is:
3. On January 1, a company issues bonds dated January 1 with a par value of $340,000. The bonds mature in 5 years. The contract rate is 11%, and interest is paid semiannually on June 30 and December 31. The market rate is 12% and the bonds are sold for $327,490. The journal entry to record the issuance of the bond is:
Debit Cash $327,490; debit Discount on Bonds Payable $12,510; credit Bonds Payable $340,000.
Debit Cash $340,000; credit Discount on Bonds Payable $12,510; credit Bonds Payable $327,490.
Debit Cash $327,490; debit Premium on Bonds Payable $12,510; credit Bonds Payable $340,000.
Debit Bonds Payable $340,000; debit Bond Interest Expense $12,510; credit Cash $352,510.
Debit Cash $327,490; credit Bonds Payable $327,490.
4. A company issued 9%, 15-year bonds with a par value of $460,000 that pay interest semiannually. The market rate on the date of issuance was 9%. The journal entry to record each semiannual interest payment is:
Debit Bond Interest Expense $20,700; credit Cash $20,700.
Debit Bond Interest Expense $41,400; credit Cash $41,400.
Debit Bond Interest Payable $30,667; credit Cash $30,667.
Debit Bond Interest Expense $410,000; credit Cash $410,000.
No entry is needed, since no interest is paid until the bond is due.
5. On January 1, a company issued and sold a $440,000, 6%, 10-year bond payable, and received proceeds of $434,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the discount. The carrying value of the bonds immediately after the first interest payment is:
6. On February 15, Jewel Company buys 7,200 shares of Marcelo Corp. common stock at $28.63 per share plus a brokerage fee of $410. The stock is classified as available-for-sale securities. This is the company’s first and only investment in available-for-sale securities. On March 15, Marcelo Corp. declares a dividend of $1.20 per share payable to stockholders of record on April 15. Jewel Company received the dividend on April 15 and ultimately sells half of the Marcelo Corp. stock on November 17 of the current year for $29.40 per share less a brokerage fee of $260. The journal entry to record the sale of the 3,600 shares of stock on November 17 is:
Debit Cash $105,580; credit Long-Term Investments-AFS $103,068; credit Gain on Sale of Long-Term Investments $2,512.
Debit Cash $105,840; credit Long-Term Investments-Trading $103,068; debit Gain on Sale of Long-Term Investments $2,772.
Debit Cash $105,840; credit Long-Term Investments-AFS $103,273; credit Gain on Sale of Long-Term Investments $2,567.
Debit Cash $105,580; credit Long-Term Investments-AFS $103,273; credit Gain on Sale of Long-Term Investments $2,307.
Debit Cash $105,840; credit Long-Term Investments-Trading $103,068; credit Gain on Sale of Long-Term Investments $2,772.
7. Carpark Services began operations in 20X1 and maintains
long-term investments in available-for-sale securities. The
year-end cost and fair values for its portfolio of these
investments follow. The year-end adjusting entry to record the
unrealized gain/loss at December 31, 20X1 is:
|Available-for-Sale Securities||Cost||Fair Value|
|December 31, 20X1||$||305,000||$||300,000|
|December 31, 20X2||$||384,000||$||390,000|
|December 31, 20X3||$||454,000||$||505,000|
Debit Unrealized Gain– Equity $5,000; Credit Fair Value Adjustment – Available-for-Sale (LT) $5,000.
Debit Unrealized Loss – Equity $5,000; Credit Fair Value Adjustment – Available-for-Sale (LT) $5,000.
Debit Unrealized Loss – Income $5,000; Credit Fair Value Adjustment – Available-for-Sale (ST) $5,000.
Debit Fair Value Adjustment – Available-for-Sale (LT) $5,000; Credit Unrealized Loss – Equity $5,000.
Debit Fair Value Adjustment – Available-for-Sale (LT) $5,000; Credit Unrealized Gain – Equity $5,000.
8. Use the following information and the indirect method to calculate the net cash provided or used by operating activities:
|Gain on sale of land||8,100|
|Increase in merchandise inventory||2,650|
|Increase in accounts payable||6,750|
9. A company had net cash flows from operations of $130,000, cash flows from financing of $350,000, total cash flows of $530,000, and average total assets of $3,100,000. The cash flow on total assets ratio equals:
10. Use the following information about the current year's
operations of a company to calculate the cash paid for
|Cost of goods sold||$||630,000|
|Merchandise inventory, January 1||98,000|
|Merchandise inventory, December 31||123,000|
|Accounts payable, January 1||94,000|
|Accounts payable, December 31||73,000|
Solution: Option D is the correct answer and it can be computed as follows:
workings: Preferred stockholders are paid $4 dividend per share but can not exceeds the total dividend declared and common stockholders are paid remaining amount of dividend after paying to preferred stockholders.
Question (2). Solution:
Interest expense for the first semiannual interest period = Price of bonds * Market rate / 2
= $123,546 * 8% / 2
= $4,941.84 ( i.e. option c)
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