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ACC423 Final Exam Part 1

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Question 1
Buttercup Corporation issued 300 shares of $10 par value common stock for $4,500. Prepare
Buttercup’s journal entry.

Question 2
Wilco Corporation has the following account balances at December 31, 2012.

Common stock, $5 par value  510,000
Treasury stock   90,000
Retained earnings   2,340,000
Paid-in capital in excess of par - common stock   1,320,000

Prepare Wilco’s December 31, 2012, stockholders’ equity section.

Question 3
Woolford Inc. declared a cash dividend of $1.00 per share on its 2 million outstanding shares. The
dividend was declared on August 1, payable on September 9 to all stockholders of record on August 15.
Prepare all journal entries necessary on those three dates.

Question 4
The outstanding capital stock of Pennington Corporation consists of 2,000
shares of $100 par value, 6% preferred, and 5,000 shares of $50 par value common.

Instructions
Assuming that the company has retained earnings of $70,000, all of which is to be paid out in dividends, and that preferred dividends were not paid during the 2 years preceding the current year, determine how much each class of stock should receive under each of the following conditions.
(a) The preferred stock is noncumulative and nonparticipating.
(b) The preferred stock is cumulative and nonparticipating.
(c) The preferred stock is cumulative and participating. (Round dividend rate percentages to four
decimal places.)

Question 5
Martinez Company’s ledger shows the following balances on December
31, 2012.
Preferred Stock (5%; $10 par value, outstanding 20,000 shares) ....$ 200,000
Common Stock ($100 par value, outstanding 30,000 shares) ..........3,000,000
Retained Earnings .................................................630,000

Instructions
Assuming that the directors decide to declare total dividends in the amount of $266,000, determine how
much each class of stock should receive under each of the conditions stated below. One year‘s dividends
are in arrears on the preferred stock.
(a) The preferred stock is cumulative and fully participating.
(b) The preferred stock is noncumulative and nonparticipating.
(c) The preferred stock is noncumulative and is participating in distributions in excess of a 7% dividend
rate on the common stock.

Question 6
On January 1, 2012, Barwood Corporation granted 5,000 options to executives. Each option entitles
the holder to purchase one share of Barwood’s $5 par value common stock at $50 per share at any time
during the next 5 years. The market price of the stock is $65 per share on the date of grant. The fair value of the options at the grant date is $150,000. The period of benefit is 2 years. Prepare Barwood’s journal entries for January 1, 2012, and December 31, 2012 and 2013.

Question 7
Rockland Corporation earned net income of $300,000 in 2012 and had 100,000 shares of common
stock outstanding throughout the year. Also outstanding all year was $800,000 of 10% bonds, which are convertible into 16,000 shares of common. Rockland’s tax rate is 40 percent. Compute Rockland’s 2012 diluted earnings per share.

Question 8
DiCenta Corporation reported net income of $270,000 in 2012 and had 50,000 shares of common
stock outstanding throughout the year. Also outstanding all year were 5,000 shares of cumulative preferred stock, each convertible into 2 shares of common. The preferred stock pays an annual dividend of $5 per share. DiCenta’s tax rate is 40%. Compute DiCenta’s 2012 diluted earnings per share.

Question 9
Ferraro, Inc. established a stock-appreciation rights (SAR) program on January 1, 2012, which
entitles executives to receive cash at the date of exercise for the difference between the market price of the stock and the pre-established price of $20 on 5,000 SARs. The required service period is 2 years. The fair value of the SARs are determined to be $4 on December 31, 2012, and $9 on December 31, 2013. Compute Ferraro’s compensation expense for 2012 and 2013

Question 10
Hillsborough Co. has an available-for-sale investment in the bonds of Schuyler Corp. with a
carrying (and fair) value of $70,000. Hillsborough determined that due to poor economic prospects for
Schuyler, the bonds have decreased in value to $60,000. It is determined that this loss in value is other than-temporary. Prepare the journal entry, if any, to record the reduction in value.

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