Accounting-On January 1, 2004 ABC Co purchased a $70000 bond for $71000

| January 30, 2017

Question
1. On January 1, 2004 ABC Co purchased a $70000 bond for $71000. It is a 7%, 5 year bond paying interest on January 1 and July1. The straight line method is used to amortize premium. The market value of the bond on Dec 31, 2004 was $70500.

1) How much interest was received on July 1?

2) Assume the bond was considered to be Held to Maturity. What is the entry to amortize the premium on Dec 31 assuming no premium amortization had been recorded yet? What is the entry to mark the bond to market?

3) Assume the bond was considered to be a trading security. What is the entry to amortize the premium on Dec 31 assuming no premium amortization had been recorded yet? What is the entry to mark the bond to market?

4) Assume the bond is considered to be available for sale. What is the entry to amortize the premium on Dec 31 assuming no premium amortization had been recorded yet? What is the entry to mark the bond to market?

2. On April 1 ABC Co purchased 2500 shares of XYZ Co for $12 a share. XYZ has 10000 shares outstanding.

On Dec 31, XYZ reported net income of $15800.

On Dec 31, XYZ declared a cash dividend of $.20 a share.

At the end of the year XYZ had afMV of $14.50 per share

1) Record the journal entry on the books of ABC to show the purchase of XYZ stock.

2) Record the journal entry on the books of ABC to show the impact of XYZ’s earnings (if necessary)

3) Record the journal entry on ABC’s books for the declaration of the cash dividend by XYZ.

4) How much is the investment in XYZ at the end of the year?

3.1) Rosemary Inc. entered into a four-year lease of equipment for $7,000 a year, payable at the beginning of each year. The lessor required Rosemary to guarantee that the equipment would be worth $10,000 at the end of the lease. If Rosemary’s incremental borrowing rate is 12 percent and the lessor’s implicit interest rate, which Rosemary is aware of, is 10 percent, Rosemary should record an asset on its books of what amount? Prepare the journal entry.

2) On December 31, 2005, Scoter Inc. leased a machine for six years and made the first annual lease payment of $9,000. Scoter Inc. appropriately recorded this lease as a capital lease in 2005. The second payment was made on December 31, 2006. If the lessor’s implicit interest rate on the lease is 8 percent, on its December 31, 2006, balance sheet, Scoter Inc. should report a lease obligation of what amount? Prepare the journal entry to record the payment on Dec 31, 2006.

4. On January 1, 2008, Humpty leased equipment to Dumpty for $100,000 a year for eight years, with the first payment being made on January 1, 2008. The equipment cost Humpty $500,000 to manufacture. If Humpty requires a 10 percent return on this lease, in its initial entry how much is

a) Lease receivable

b) Cost of goods sold

c) Unearned interest

d) Sales

Show computations.

5. 1)You failed to accrue wage expense of $500 in 2007. In 2008 you debited wage expense and credited cash for $500.

Assume the books are closed for 2007, what is the correcting entry in 2008?

2) On October 1 2007, when you bought an insurance policy for 3 years in advance for $3600, you debited prepaid insurance. You forgot to adjust as of December 31, 2007. What is the correcting entry in 2008, assuming the books are closed for 2007?

3) Use the same information as #2 except on October 1, 2007 you debited insurance expense for $3600. What is the correcting entry in 2008, assuming the books are closed for 2007?

4) On April 1, 2007 you received rent in advance of $36,000 for 2 years. You credited unearned revenue. You forgot to make an adjusting entry on December 31, 2007. What is the correcting entry to be made in 2008 assuming the books for 2007 are closed?

6. 1) The following information pertains to ABC Corp.’s outstanding stock for 2008:

Common stock, $1 par value

Shares outstanding, 1/1/08

10,000

2-for-1 stock split, 4/1/08

10,000

Shares issued, 7/1/08

5,000

Preferred stock, $20 par value, 6% cumulative

Shares outstanding, 1/1/08

4,000

How many shares should ABC Corp. use to calculate 2008 basic EPS?

2)

XYZ Inc. incurred the following changes in the number of shares ofcommon stock outstanding during 2008:

January 1

Beginning balance

24,000

May 1

Issuedfor cash

3,000

June 30

Issued a 2-for-1 stock split

December 1

Purchased for treasury stock

3,000

Additional information:

Net income was $120,000 for 2008.

XYZ paid $3,000 in dividends to its commonstockholders on April 30.

a) Compute the weighted-average number of shares of common stock of XYZ Inc. outstanding for 2008.

b) Compute the 2008 EPS for XYZ.

3)GEF Corporation reported a net income of $300,000 for the year ended December 31, 2008. GEF Corporation had 50,000 shares of common stock outstanding for all of 2008. Also throughout 2008, Omega had 3,000 shares ofconvertible preferred stock with a par value of $100 that paid a 10 percent dividend. Each share of preferred stock is convertible into five shares of common stock. None of the preferred stock was converted during 2008. GEF’s income tax rate is 40 percent.

1. Compute the basic EPS and the diluted EPS for GEF for 2008.

7. St. Joe’s Inc. reported a $21,000 net loss for 2006. Below are the increases and decreases in selected accounts for 2006:

Cash $ 7,000 increase

Accounts Receivable

10,000 decrease

Inventory

2,000 decrease

Prepaid Expense

5,000 increase

Dividend Payable

3,000 increase

Interest Payable

2,000 decrease

Accumulated Depreciation

8,000 increase

St. Joe’s Inc. had no changes in its plant or equipment.

How much was St.Joe’s cash flow from operations? You must show computations to get full credit.

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