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    Accounting and Finance Problems

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    1. In 2003, David Corp. acquired 15,000 shares of its own $1 par value
    common stock at $18 per share. In 2004, David issued 10,000 of these
    shares at $25 per share. David uses the cost method to account for
    its treasury stock transactions. What accounts and what amounts
    should David credit in 2004 to record the issuance of the 10,000
    shares?
    Additional
    Treasury Paid-in Retained Common
    Stock Capital Earnings Stock
    ???????? ?????????? ???????? ???????
    a. $180,000 $70,000
    b. $180,000 $ 70,000
    c. $240,000 $10,000
    d. $170,000 $70,000 $10,000

    2. Lynn Co. issued 150,000 shares of $10 par common stock for
    $1,800,000. Lynn acquired 6,000 shares of its own common stock
    at $15 per share. Three months later, Lynn sold 3,000 of these
    shares at $19 per share. If the cost method is used to record
    treasury stock transactions, to record the sale of the 3,000
    treasury shares, Lynn should credit
    a. Treasury Stock for $57,000.
    b. Treasury Stock for $30,000 and Paid-in Capital from Treasury
    Stock for $27,000.
    c. Treasury Stock for $45,000 and Paid-in Capital from Treasury
    Stock for $12,000.
    d. Treasury Stock for $45,000 and Paid-in Capital in Excess of
    Par for $12,000

    3. Farmer Corporation owns 4,000,000 shares of stock in Baha
    Corporation. On December 31, 2003, Farmer distributed these shares
    of stock as a dividend to its stockholders. This is an example of a
    a. property dividend.
    b. stock dividend.
    c. liquidating dividend.
    d. cash dividend.

    4. Franco Company acquired 16,000 shares of its own common stock at
    $20 per share on February 5, 2003, and sold 8,000 of these shares
    at $27 per share on August 9, 2004. The market value of Franco's
    common stock was $24 per share at December 31, 2003, and $25 per
    share at December 31, 2004. The cost method is used to record
    treasury stock transactions. What account(s) should Franco credit
    in 2004 to record the sale of 8,000 shares?
    a. Treasury Stock for $216,000.
    b. Treasury Stock for $160,000 and Paid-in Capital from Treasury
    Stock for $56,000.
    c. Treasury Stock for $160,000 and Retained Earnings for $56,000.
    d. Treasury Stock for $192,000 and Retained Earnings for $24,000.

    5. Dryer Company had 300,000 shares of common stock issued and
    outstanding at December 31, 2003. During 2004, no additional common
    stock was issued. On January 1, 2004, Dryer issued 400,000 shares
    of nonconvertible preferred stock. During 2004, Dryer declared and
    paid $240,000 cash dividends on the common stock and $200,000 on the
    nonconvertible preferred stock. Net income for the year ended
    December 31, 2004, was $1,280,000. What should be Dryer's 2004
    earnings per common share, rounded to the nearest penny?
    a. $1.55.
    b. $2.80.
    c. $3.60.
    d. $4.26.

    6. At December 31, 2003, Olsen Company had 600,000 shares of common
    stock outstanding. On October 1, 2004, an additional 120,000 shares
    of common stock were issued. In addition, Olsen had $5,000,000 of
    6% convertible bonds outstanding at December 31, 2003, which are
    convertible into 270,000 shares of common stock. No bonds were
    converted into common stock in 2004. The net income for the year
    ended December 31, 2004, was $1,500,000. Assuming the income tax
    rate was 30%, the diluted earnings per share for the year ended
    December 31, 2004, should be (rounded to the nearest penny)
    a. $2.72.
    b. $2.00.
    c. $1.90.
    d. $1.67.

    ------------------------------
    The summarized balance sheets of Elston Company and Alley Company
    as of December 31, 2004 are as follows:

    Elston Company
    Balance Sheet
    December 31, 2004
    Assets $800,000

    Liabilities $100,000
    Capital stock 400,000
    Retained earnings 300,000
    ????????
    Total equities $800,000

    Alley Company
    Balance Sheet
    December 31, 2004
    Assets $600,000

    Liabilities $150,000
    Capital stock 370,000
    Retained earnings 80,000
    ????????
    Total equities $600,000

    7. If Elston Company acquired a 30% interest in Alley Company on
    December 31, 2004 for $150,000 and the equity method of accounting
    for the investment were used, the amount of the debit to Investment
    in Alley Company Stock would have been
    a. $180,000.
    b. $150,000.
    c. $120,000.
    d. $135,000.

    ------------------------------
    Karter Company purchased 200 of the 1,000 outstanding shares of
    Flynn Company's common stock for $180,000 on January 2, 2004. During
    2004, Flynn Company declared dividends of $30,000 and reported
    earnings for the year of $120,000.

    8. If Karter Company used the fair value method of accounting for its
    investment in Flynn Company, its Investment in Flynn Company account
    on December 31, 2004 should be
    a. $174,000.
    b. $198,000.
    c. $180,000.
    d. $204,000.

    9. When investments in debt securities are purchased between interest
    payment dates, preferably the
    a. securities account should include accrued interest.
    b. accrued interest is debited to Interest Expense.
    c. accrued interest is debited to Interest Revenue.
    d. accrued interest is debited to Interest Receivable.

    10. Byner Corporation accounts for its investment in the common stock
    of Yount Company under the equity method. Byner Corporation
    should ordinarily record a cash dividend received from Yount as
    a. a reduction of the carrying value of the investment.
    b. additional paid-in capital.
    c. an addition to the carrying value of the investment.
    d. dividend income.

    ------------------------------
    Lansing Co. at the end of 2004, its first year of operations,
    prepared a reconciliation between pretax financial income and
    taxable income as follows:
    Pretax financial income $ 900,000
    Estimated litigation expense 1,200,000
    Extra depreciation for taxes (1,800,000)
    ??????????
    Taxable income $ 300,000

    The estimated litigation expense of $1,200,000 will be deductible in
    2005 when it is expected to be paid. Use of the depreciable assets
    will result in taxable amounts of $600,000 in each of the next three
    years. The income tax rate is 30% for all years.

    11. The deferred tax liability to be recognized is

    Current Noncurrent
    ??????? ??????????
    a. $180,000 $360,000
    b. $180,000 $270,000
    c. $0 $540,000
    d. $0 $450,000

    12. In its 2004 income statement, Simon Corp. reported depreciation of
    $740,000 and interest revenue on municipal obligations of $140,000.
    Simon reported depreciation of $1,100,000 on its 2004 income tax
    return. The difference in depreciation is the only temporary
    difference, and it will reverse equally over the next three years.
    Simon's enacted income tax rates are 35% for 2004, 30% for 2005, and
    25% for 2006 and 2007. What amount should be included in the
    deferred income tax liability in Simon's December 31, 2004 balance
    sheet?
    a. $96,000.
    b. $124,000.
    c. $150,000.
    d. $175,000.

    ------------------------------
    Easton Co. at the end of 2004, its first year of operations,
    prepared a reconciliation between pretax financial income and
    taxable income as follows:

    Pretax financial income $ 400,000
    Estimated litigation expense 1,000,000
    Installment sales (800,000)
    ??????????
    Taxable income $ 600,000

    The estimated litigation expense of $1,000,000 will be deductible in
    2006 when it is expected to be paid. The gross profit from the
    installment sales will be realized in the amount of $400,000 in each
    of the next two years. The estimated liability for litigation is
    classified as noncurrent and the installment accounts receivable are
    classified as $400,000 current and $400,000 noncurrent. The income
    tax rate is 30% for all years.

    13. The income tax expense is
    a. $120,000.
    b. $180,000.
    c. $200,000.
    d. $400,000.

    14. One component of pension expense is expected return on plan assets.
    Plan assets include
    a. contributions made by the employer and contributions made by the
    employee when a contributory plan of some type is involved.
    b. plan assets still under the control of the company.
    c. only assets reported on the balance sheet of the employer as
    prepaid pension cost.
    d. none of these.

    15. A company using a perpetual inventory system neglected to record a
    purchase of merchandise on account at year end. This merchandise was
    omitted from the year-end physical count. How will these errors
    affect assets, liabilities, and stockholders' equity at year end and
    net income for the year?

    Assets Liabilities Stockholders' Equity Net Income
    ?????? ??????????? ???????????????????? ??????????
    a. No effect Understate Overstate Overstate
    b. No effect Overstate Understate Understate
    c. Understate Understate No effect No effect
    d. Understate No effect Understate Understate

    PROBLEMS

    A. Sands Corporation has the following capital structure at the
    beginning of the year:

    6% Preferred stock, $50 par value, 20,000 shares
    authorized, 6,000 shares issued and
    outstanding $ 300,000
    Common stock, $10 par value, 60,000 shares
    authorized, 40,000 shares issued and
    outstanding 400,000
    Paid-in capital in excess of par 110,000
    ??????????
    Total paid-in capital 810,000
    Retained earnings 340,000
    ??????????
    Total stockholders' equity $1,150,000

    INSTRUCTIONS
    (a) Record the following transactions which occurred consecutively
    (show all calculations).

    1. A total cash dividend of $70,000 was declared and payable to
    stockholders of record. Record dividends payable on common
    and preferred stock in separate accounts.

    2. A 10% common stock dividend was declared. The average market
    value of the common stock is $15 a share.

    3. Assume that net income for the year was $240,000 (record the
    closing entry) and the board of directors appropriated
    $80,000 of retained earnings for plant expansion.

    (b) Construct the stockholders' equity section incorporating all the
    above information.

    B. Norway Company purchased equipment for $270,000 on January 2, 2003,
    its first day of operations. For book purposes, the equipment will
    be depreciated using the straight-line method over three years with
    no salvage value. Pretax financial income and taxable income are as
    follows:
    2003 2004 2005
    ???????? ???????? ????????
    Pretax financial income $156,000 $170,000 $180,000
    Taxable income 120,000 170,000 216,000

    The temporary difference between pretax financial income and taxable
    income is due to the use of accelerated depreciation for tax
    purposes.

    INSTRUCTIONS
    (a) Prepare the journal entries to record income taxes for all three
    years (expense, deferrals, and liabilities) assuming that the
    enacted tax rate applicable to all three years is 30%.

    (b) Prepare the journal entries to record income taxes for all three
    years (expense, deferrals, and liabilities) assuming that the
    enacted tax rate as of 2003 is 30% but that in the middle of
    2004, Congress raises the income tax rate to 35% retroactive to
    the beginning of 2004.

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    https://brainmass.com/business/finance/accounting-and-finance-problems-122853

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