(2)



(2)

On August 31, Jenks Co. partially refunded $180,000 of its outstanding 10% note payable, made one year ago to Arma State Bank by paying $180,000 plus $18,000 interest, having obtained the $198,000 by using $52,400 cash and signing a new one-year $160,000 note discounted at 9% by the bank.

Instructions

(1) Make the entry to record the partial refunding. Assume Jenks Co. makes reversing entries when appropriate.

(2) Prepare the adjusting entry at December 31, assuming straight-line amortization of the discount.

(1) Notes Payable 180,000

Interest Expense 18,000

Discount on Notes Payable (9% × $160,000) 14,400

Notes Payable 160,000

Cash 52,400

(2) Interest Expense (1/3 × $14,400) 4,800

Discount on Notes Payable 4,800

(3)

On January 1, 2010, Solis Co. issued its 10% bonds in the face amount of $3,000,000, which mature on January 1, 2020. The bonds were issued for $3,405,000 to yield 8%, resulting in bond premium of $405,000. Solis uses the effective-interest method of amortizing bond premium. Interest is payable annually on December 31. At December 31, 2010, Solis's adjusted unamortized bond premium is what amount? Please show computations

$405,000 – [($3,000,000 × .10) – ($3,405,000 × .08)] = $377,400

(4)

Presented below is information related to Wyrick Company:

(1.) The company is granted a charter that authorizes issuance of 15,000 shares of $100 par value preferred stock and 40,000 shares of no-par common stock.

(2.) 8,000 shares of common stock are issued to the founders of the corporation for land valued by the board of directors at $300,000. The board establishes a stated value of $5 per share for the common stock.

(3.) 5,000 shares of preferred stock are sold for cash at $120 per share.

(4.) The company issues 100 shares of common stock to its attorneys for costs associated with starting the company. At that time, the common stock was selling at $60 per share.

Instructions

Prepare the general journal entries necessary to record these transactions.

1. No entry necessary.

2. Land 300,000

Common Stock 40,000

Paid-in Capital in Excess of Stated Value 260,000

3. Cash 600,000

Preferred Stock 500,000

Paid-in Capital in Excess of Par—Preferred Stock 100,000

4. Organization Expense 6,000

Common Stock 500

Paid-in Capital in Excess of Stated Value 5,500

(5) The stockholder’s equity section of Lemay Corp shows the following on Dec 31, 2011:

Preferred stock- 6% $100 par, $4000 shares outstanding $400,000

Common Stock-$10 par, 60,000 shares outstanding $600,000

Paid-in capital in excess of par $200,000

Retained earnings $114,000

Total stockholders equity $1,314,000

Instructions:

Assuming that all of the company’s retained earnings are to be paid out in dividends on 13/31/11 and that preferred dividends were last paid on 12/31/09, show how much the preferred and common stockholders should receive if the preferred stock is cumulative and fully participating.

Preferred Common Total

Dividends in arrears (6% of $400,000) $24,000 $ — $ 24,000

Current year's dividends 24,000 36,000 60,000

Participating dividend (3%)

[($30,000 ÷ $1,000,000) x $400,000] 12,000 18,000 30,000

$60,000 $54,000 $114,000

(6)

At December 31, 2010, Sager Co. had 1,200,000 shares of common stock outstanding. In addition, Sager had 450,000 shares of preferred stock which were convertible into 750,000 shares of common stock. During 2011, Sager paid $600,000 cash dividends on the common stock and $400,000 cash dividends on the preferred stock. Net income for 2011 was $3,400,000 and the income tax rate was 40%. What would be the diluted earnings per share for 2011 (rounded to the nearest penny)? Please show all computations.

$3,400,000

—————————— = $1.74.

1,200,000 + 750,000

(7)

Presented below are unrelated cases involving investments in equity securities.

Case I. The fair value of the trading securities at the end of last year was 30% below original cost, and this was properly reflected in the accounts. At the end of the current year, the fair value has increased to 20% above cost.

Case II. The fair value of an available-for-sale security has declined to less than forty percent of the original cost. The decline in value is considered to be other than temporary.

Case III. An equity security, whose fair value is now less than cost, is classified as trading but is reclassified as available-for-sale.

Instructions

Indicate the accounting required for each case separately.

Case I. At the end of last year, the company would have recognized an unrealized holding loss and recorded a Securities Fair Value Adjustment (Trading). At the end of the current year, the company would record an unrealized holding gain that would be reported in the other revenue and gains section. The adjustment account would now have a debit balance.

Case II. When the decline in value is considered to be other than temporary, the loss should be recognized as if it were realized and earnings will be reduced. The fair value becomes a new cost basis.

Case III. The security is transferred at fair value, which is the new cost basis of the security. The Available-for-Sale Securities account is recorded at fair value, and the Unrealized Holding Loss—Income account is debited for the unrealized loss. The Trading Securities account is credited for cost.

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