Final Exam Review Essay

FINAL EXAM REVIEW BE15-4. Lump-Sum Sales Ravonette Corporation issued 300 shares of $10 par value common stock and 100 shares of $50 par value preferred stock for a lump sum of $13,500. The common stock has a market price of $20 per share, and the preferred stock has a market price of $90 per share. Prepare journal entry. | | | P15-2. Treasury Stock ProblemClemson Company had the following stockholders’ equity as of January 1, 2012. Common stock, $5 par value, 20,000 shares issued| $100,000| Paid-in capital in excess of par—common stock| 300,000| Retained earnings| 320,000| Total stockholders’ equity| $720,000| | | Feb. 1| Clemson repurchased 2,000 shares of treasury stock at a price of $19 per share.| Mar. 1| 800 shares of treasury stock repurchased above were reissued at $17 per share.| Mar. 18| 500 shares of treasury stock repurchased above were reissued at $14 per share.| Apr. 22| 600 shares of treasury stock repurchased above were reissued at $20 per share.| | | | Stock Dividend Problem (Page 17 in Moodle Ch. 15 Notes)| | | | CS, $5 par, 40,000 shares issued and outstanding| $ 200,000| Paid-in capital in excess of par| 835,000| Retained earnings| 2,160,000| Shares of the company’s stock are selling at this time at $22. 1. A 10% stock dividend is declared and issued. 2. A 50% stock dividend is declared and issued. 3. A 2-for-1 stock split is declared and issued. E3.9. Adjusting Entries Supplies| Accounts Receivable| Beg. Bal.| 800| 10/31| 470| 10/17| 2,100| | | | | | | 10/31| 1,650| | | | Salaries and Wages Expense| Salaries and Wages Payable| 10/15| 800| | | | | 10/31| 600| 10/31| 600| | | | | | | | Unearned Service Revenue| Supplies Expense| 10/31| 400| 10/20| 650| 10/31| 470| | | | Service Revenue| | | 10/17| 2,100| | | 10/31| 1,650| | | 10/31| 400| | | | Instructions: Reconstruct 3 transaction entries and 4 adjusting entries. P4.3. (Irregular Items) Maher Inc. reported income from continuing operations before taxes during 2012 of $790,000. Additional transactions occurring in 2012 but not considered in the $790,000 are as follows. | | 1. | The corporation experienced an uninsured flood loss (extraordinary) in the amount of $90,000 during the year. The tax rate on this item is 46%.| 2. | At the beginning of 2010, the corporation purchased a machine for $54,000 (salvage value of $9,000) that had a useful life of 6 years. The bookkeeper used straight-line depreciation for 2010, 2011, and 2012 but failed to deduct the salvage value in computing the depreciation base.| 3. | Sale of securities held as a part of its portfolio resulted in a loss of $57,000 (pretax).| 4. | When its  president died, the corporation realized $150,000 from an insurance policy. The cash surrender value of this policy had been carried on the books as an investment in the amount of $46,000 (the gain is nontaxable).| 5. | The corporation disposed of its recreational division at a loss of $115,000 before taxes. Assume that this transaction meets the criteria for discontinued operations.| 6. | The corporation decided to change its method of inventory pricing from average cost to the FIFO method. The effect of this change on prior years is to increase 2010 income by $60,000 and decrease 2011 income by $20,000 before taxes. The FIFO method has been used for 2012. The tax rate on these items is 40%.| | Instructions: Prepare an income statement for the year 2012 starting with income from continuing operations before taxes. Compute earnings per share as it should be shown on the face of the income statement. Common shares outstanding for the year are 120,000 shares. (Assume a tax rate of 30% on all items, unless indicated otherwise.) Time Value of Money Problems BE6.5.Sally Medavoy will invest $8,000 a year for 20 years in a fund that will earn 12% annual interest. If the first payment into the fund occurs today, what amount will be in the fund in 20 years? If the first payment occurs at year-end, what amount will be in the fund in 20 years? BE6.7.John Fillmore’s lifelong dream is to own his own fishing boat to use in his retirement. John has recently come into an inheritance of $400,000. He estimates that the boat he wants will cost $300,000 when he retires in 5 years. How much of his inheritance must he invest at an annual rate of 12% (compounded annually) to buy the boat at retirement? BE6.8.Refer to the data in BE6.7. Assuming quarterly compounding of amounts invested at 12%, how much of John Fillmore’s inheritance must be invested to have enough at retirement to buy the boat? BE6.12.Maria Alvarez is investing $300,000 in a fund that earns 8% interest  compounded annually. What equal amounts can Maria withdraw at the end of each of the next 20 years? BE6.14.Amy Monroe wants to create a fund today that will enable her to withdraw $25,000 per year for 8 years, with the first withdrawal to take place 5 years from today. If the fund earns 8% interest, how much must Amy invest today? Bad Debt Expense Entries BE7.4. | | | Wilton, Inc. had net sales in 2012 of $1,400,000. At December 31, 2012, before adjusting entries, the balances in selected accounts were: Accounts Receivable $250,000 debit, and Allowance for Doubtful Accounts $2,400 credit. If Wilton estimates that 2% of its net sales will prove to be uncollectible, prepare the December 31, 2012, journal entry to record bad debt expense.| BE7.5. | Use the information presented in BE7.4 for Wilton, Inc. (a) | Instead of estimating the uncollectibles at 2% of net sales, assume that 10% of accounts receivable will prove to be uncollectible. Prepare the entry to record bad debt expense.| (b) | Instead of estimating uncollectibles at 2% of net sales, assume Wilton prepares an aging schedule that estimates total uncollectible accounts at $24,600. Prepare the entry to record bad debt expense.| | Non-Interest Bearing Note Receivable BE7.7.Dold Acrobats lent $16,529 to Donaldson, Inc., accepting Donaldson’s 2-year, $20,000, zero-interest-bearing note on 1/1/2012. The implied interest rate is 10%. Prepare Dold’s journal entries for the initial transaction, recognition of interest each year, and the collection of $20,000 at maturity. Inventory Errors (From Moodle Notes Ch. 8) 1. Merchandise purchased on account in 2010 was not recorded until 2011, when the company’s bookkeeper received an invoice for $5,430. The shipment had arrived and was counted in physical inventory at the end of 2010. a) What entry was NOT made in 2010? b) What adjusting entry was made at 12/31/10? c) What is the correcting entry in 2011? 2. Goods costing $22,000 were shipped f.o.b. shipping point by a supplier on December 28, 2011. The company received the invoice and recorded it on December 29; however, the goods were not included in the physical count of inventory since they were in transit. a) What entry was correctly made in 2011? b) What incorrect adjusting entry was made on 12/31/11? c) What is the correcting entry in 2012? BE9.2. Lower of Cost or Market Floyd Corporation has the following four items in its ending inventory. Item| Cost| Replacement Cost| Net Realizable Value (NRV)| NRV less Normal Profit Margin| Jokers| $2,000| $2,050| $2,100| $1,600| Penguins| 5,000| 5,100| 4,950| 4,100| Riddlers| 4,400| 4,550| 4,625| 3,700| Scarecrows| 3,200| 2,990| 3,830| 3,070| | Determine inventory value and record loss using allowance method. BE9.7.Gross Profit Method Fosbre Inc.’s April 30 inventory was destroyed by fire. January 1 inventory was $150,000, and purchases for January through April totaled $500,000. Sales for the same period were $700,000. Fosbre’s normal gross profit percentage is 35% on sales. Using the gross profit method, estimate Fosbre’s April 30 inventory that was destroyed by fire.