Ch 12 Before Exam Review-Sol PDF

Ch 12 : Before Exam Review ACC 112 89. Voltaire Corporation issued 5,000 ordinary shares of CHF5 par value for CHF20 per share. The entry to record this transaction includes a...

Ch 12 : Before Exam Review ACC 112 89. Voltaire Corporation issued 5,000 ordinary shares of CHF5 par value for CHF20 per share. The entry to record this transaction includes a credit to Share Premium–Ordinary for a. CHF100,000. b. CHF75,000. c. CHF25,000. d. CHF50,000. Ans: b, LO: 2, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting Share Premium = 5,000 × ( 20 – 5 ) = 75,000 90. Voltaire Corporation issued 5,000 ordinary shares of CHF5 par value for CHF20 per share. This transaction will increase a. Share Premium–Ordinary by CHF100,000. b. total equity by CHF25,000. c. Retained Earnings by CHF75,000. d. Share Capital–Ordinary by CHF25,000. Ans: d, LO: 2, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting Date Accounts Dr. Cr January 1 Cash ( 5,000 × $20 ) 100,000 Share Capital-ordinary ( 5,000 × $5) 25,000 Share Premium-ordinary 75,000 91. Jahnke Corporation issued 8,000 shares of €2 par value ordinary shares for €11 per share. The journal entry to record the sale will include a. a debit to Cash for €16,000. b. a credit to Share Premium–Ordinary for €72,000. c. a credit to Share Capital–Ordinary for €88,000. d. a debit to Retained Earnings for €22,000. Ans: b, LO: 2, Bloom: AP, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting Date Accounts Dr. Cr January 1 Cash ( 8,000 × $11 ) 88,000 Share Capital-ordinary ( 8,000 × $2) 16,000 Share Premium-ordinary 72,000 94. If Vickers Company issues 5,000 ordinary shares with a $5 par value for $175,000, a. Share Capital–Ordinary will be credited for $175,000. b. Share Premium–Ordinary will be credited for $25,000. c. Share Premium–Ordinary will be credited for $150,000. d. Cash will be debited for $150,000. Ans: c, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, Date Accounts Dr. Cr January 1 Cash ( Given) 175,000 Share Capital-ordinary ( 5,000 × $5) 25,000 Share Premium-ordinary 150,000 100. Dailey Company is a publicly held corporation whose $1 par value ordinary shares are actively traded at $22 per share. The company issued 3,000 shares to acquire land recently advertised at $82,000. When recording this transaction, Dailey Company will a. debit Land for $82,000. b. credit Share Capital–Ordinary for $66,000. c. debit Land for $66,000. d. credit Share Premium–Ordinary for $79,000. Ans: c, LO: 2, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, Page 1 of 10 Ehab Abdou (97672930) Ch 12 : Before Exam Review ACC 112 Date Accounts Dr. Cr January 1 Land ( 3,000 × $22 ) 66,000 Share Capital-ordinary ( 3,000 × $1) 3,000 Share Premium-ordinary 33,000 105. Kerwin Packaging Corporation began business in 2013 by issuing 40,000 ordinary shares with a $5 par for $8 per share and 10,000 preference shares of 6%, $10 par at par. At year end, the common share had a market value of $10. On its December 31, 2014, statement of financial position, Kerwin Packaging would report a. Share Capital–Ordinary of $400,000. b. Share Capital–Ordinary of $200,000. c. Share Capital–Ordinary of $320,000. d. Share Premium–Ordinary of $200,000. Ans: b, LO: 2, Bloom: K, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Date Accounts Dr. Cr January 1 Cash ( 40,000 × $8 ) 320,000 Share Capital-ordinary ( 40,000 × $5) 200,000 Share Premium-ordinary 120,000 109. The following data is available for BOX Corporation at December 31, 2014: Ordinary shares, par €10 (authorized 25,000 shares} €200,000 Treasury shares (at cost €15 per share) 900 Based on the data, how many ordinary shares are outstanding? a. 25,000 b. 20,000 c. 24,940 d. 19,940 Ans: d, LO: 3, Bloom: AN, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Issued Shares = $200,000 ÷ $10 = 20,000 (-) Treasury Shares = $900 ÷ $15 = 60 (=) Outstanding = 19,940 112. Kendrick Corporation was organized on January 2, 2014. During 2014, Kendrick issued 20,000 shares at $32 per share, purchased 4,000 treasury shares at $26 per share, and had net income of $400,000. What is the total amount of equity at December 31, 2014? a. $640,000 b. $936,000 c. $944,000 d. $960,000 Ans: b, LO: 3, Bloom: AP, Difficulty: Medium, Min: 3, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Share Capital ordinary ( 20,000 × $32 ) 640,000 (-) Treasury Shares ( 4,000 × $26 ) - 104,000 (+) Retained Earnings (Net Income) 400,000 = Total Equity 936,000 115. A corporation purchases 40,000 shares of its own $10 par ordinary shares for $25 per share, recording it at cost. What will be the effect on total equity? a. Increase by $400,000 b. Decrease by $1,000,000 c. Increase by $1,000,000 d. Decrease by $400,000 Page 2 of 10 Ehab Abdou (97672930) Ch 12 : Before Exam Review ACC 112 Ans: b, LO: 3, Bloom: C, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting = [ 40,000 × $25 ] 117. Rancho Corporation sold 300 treasury shares for $40 per share. The cost for the shares was $30. The entry to record the sale will include a a. credit to Gain on Sale of Treasury Shares for $9,000. b. credit to Share Premium–Treasury for $3,000. c. debit to Share Premium–Ordinary for $3,000. d. credit to Treasury Shares for $12,000. Ans: b, LO: 3, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Date Accounts Dr. Cr January 1 Cash ( 300 × $40 ) 12,000 Share Premium treasury 3,000 Treasury Shares ( 300 × $30) 9,000 137. When preference shares are cumulative, preference dividends not declared in a period are a. considered a liability. b. called dividends in arrears. c. distributions of earnings. d. never paid. Ans: b, LO: 4, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: None, IMA: Reporting 145. Beckham Company has 1,000 shares of 5%, $100 par cumulative preference shares outstanding at December 31, 2014. No dividends have been paid on these shares for 2013 or 2014. Dividends in arrears at December 31, 2014 total a. $0. b. $500. c. $5,000. d. $10,000. Ans: d, LO: 4, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, Preference Share Dividends = 1,000 × $100 × 5% = $5,000 × 2 Years = $10,000 147. Each of the following decreases retained earnings except a a. cash dividend. b. liquidating dividend. c. share dividend. d. All of these decrease retained earnings. Ans: b, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 152. The effect of the declaration of a cash dividend by the board of directors is to Increase Decrease a. Equity Assets b. Assets Liabilities c. Liabilities Equity d. Liabilities Assets Ans: c, LO: 5, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: None, IMA: FSA 154. Ordinary Share Dividends Distributable is classified as a(n) a. asset account. b. equity account. c. expense account. d. liability account. Ans: b, LO: 5, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Communications, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Page 3 of 10 Ehab Abdou (97672930) Ch 12 : Before Exam Review ACC 112 157. Which one of the following events would not require a formal journal entry on a corporation's books? a. 2 for 1 share split b. 100% share dividend c. 2% share dividend d. $1 per share cash dividend Ans: a, LO: 5, Bloom: C, Difficulty: Easy, Min: 1, AACSB: None, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 158. Share dividends and share splits have the following effects on retained earnings: Share Splits Share Dividends a. Increase No change b. No change Decrease c. Decrease Decrease d. No change No change Ans: b, LO: 5, Bloom: C, Difficulty: Medium, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Communication, IMA: FSA 170. ABC, Inc. has 1,000 shares of 4%, $100 par value, cumulative preference shares and 50,000 ordinary shares with a $1 par value outstanding at December 31, 2014. What is the annual dividend per share on the preference shares? a. $40 per share b. $4,000 in total c. $400 in total d. $.40 per share Ans: b, LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Preference Share Dividends per share = $100 × 4% = $4 172. Manner, Inc. has 5,000 shares of 6%, ₤100 par value, noncumulative preference shares and 20,000 ordinary shares with a ₤1 par value outstanding at December 31, 2014. There were no dividends declared in 2013. The board of directors declares and pays a ₤55,000 dividend in 2014. What is the amount of dividends received by the ordinary shareholders in 2014? a. ₤0 b. ₤30,000 c. ₤55,000 d. ₤25,000 Ans: d, LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Preference Share Dividends = $5,000 × $100 × 6% = $30,000 Ordinary Share Dividends = $55,000 – 30,000 = $25,000 200. Colson Inc. declared a $160,000 cash dividend. It currently has 6,000 shares of 6%, $100 par value cumulative preference share outstanding. It is one year in arrears on its preference stock. How much cash will Colson distribute to the ordinary shareholders? a. $88,000. b. $72,000. c. $124,000. d. None. Ans: a, LO: 5, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Preference Share Dividends = $6,000 × $100 × 6% = $36,000 × 2 years = $72,000 Ordinary Share Dividends = $160,000 – 72,000 = $88,000 Page 4 of 10 Ehab Abdou (97672930) Ch 12 : Before Exam Review ACC 112 218. The following selected amounts are available for Sanders Company. Retained earnings (beginning) $950 Net loss 100 Cash dividends declared 100 Share dividends declared 50 What is its ending retained earnings balance? a. $800 b. $850 c. $700 d. $750 Ans: c, LO: 6, Bloom: AP, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Ending Retained Earning = 950 – 100 – 100 – 50 = $700 220. Irwin, Inc. had 200,000 ordinary shares outstanding before a share split occurred, and 400,000 shares outstanding after the share split. The share split was a. 2-for-4. b. 1-for-2. c. 1-for-4. d. 2-for-1. Ans: d, LO: 6, Bloom: K, Difficulty: Easy, Min: 1, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Shares after Split = Shares before Split × Split Rate 400,000 = 200,000 × Rate Rate = 400,000 × 200,000 = 2 : 1 261. Dillon Corporation splits its ordinary shares 2 for 1, when the market value is $40 per share. Prior to the split, Dillon had 50,000 ordinary shares with a $20 par value issued and outstanding. After the split, the par value of the shares a. remains the same. b. is reduced to $2 per share. c. is reduced to $10 per share. d. is reduced to $20 per share. Ans: c, LO: 5, Bloom: K, Difficulty: Medium, Min: 2, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Pare Value after split = Par Value Before Split × ½ Page 5 of 10 Ehab Abdou (97672930) Ch 12 : Before Exam Review ACC 112 BE 276 On November 1, 2014, Huang Corporation’s equity section (in 000) is as follows: Share capital–ordinary, $10 par value ¥600,000 Share premium–ordinary 180,000 Retained earnings 200,000 Total equity ¥980,000 On November 1, Huang declares and distributes a 10% share dividend when the market value is ¥14 per share. Instructions Indicate the balances in the equity accounts after the share dividend has been distributed. Ans: N/A, LO: 5, Bloom: AP, Difficulty: Medium, Min: 5, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution 276 (5 min.) Share Capital–Ordinary ¥660,000* Share Premium–Ordinary 204,000** Retained Earnings 116,000*** Total Equity ¥980,000 *¥600,000 + (60,000 ×.10 × ¥10) **¥180,000 + (60,000 ×.10 × ¥4) ***¥200,000 – (60,000 ×.10 × ¥14) Ex. 268 Horner Corporation is authorized to issue 1,000,000 ordinary shares with a $5 par value. During 2020, its first year of operation, the company has the following share transactions. Jan. 1 Issued 500,000 ordinary shares at $7 per share. Jan. 15 Paid the government $2,000 for incorporation fees. Jan. 30 Attorneys for the company accepted 500 ordinary shares as payment for legal services rendered in helping the company incorporate. The legal services are estimated to have a value of $5,000. July 2 Issued 100,000 shares for land. The land had an asking price of $900,000. The stock is currently selling on a national exchange at $8 per share. Sept. 5 Purchased 15,000 shares for the treasury at $10 per share. Dec. 6 Sold 11,000 treasury shares at $11 per share. Instructions Journalize the transactions for Horner Corporation. Page 6 of 10 Ehab Abdou (97672930) Ch 12 : Before Exam Review ACC 112 Solution 268 (12–14 min.) Jan. 1 Cash................................................................................... 3,500,000 Share Capital–Ordinary.............................................. 2,500,000 Share Premium–Ordinary.......................................... 1,000,000 Jan. 15 Organization Expense........................................................ 2,000 Cash.......................................................................... 2,000 Jan. 30 Organization Expense........................................................ 5,000 Share Capital–Ordinary.............................................. 2,500 Share Premium–Ordinary.......................................... 2,500 July 2 Land................................................................................... 800,000 Share Capital–Ordinary.............................................. 500,000 Share Premium–Ordinary.......................................... 300,000 Sept. 5 Treasury Shares................................................................. 150,000 Cash.......................................................................... 150,000 Dec. 6 Cash................................................................................... 121,000 Treasury Shares........................................................ 110,000 Share Premium–Treasury......................................... 11,000 Ex. 288 The following items were shown on the statement of financial position of Herman Corporation on December 31, 2014: Equity Share Capital–Ordinary, €5 par value, 360,000 shares authorized; ______ shares issued and ______ outstanding................................. €1,650,000 Share Premium–Ordinary..................................................................................... 165,000 Retained Earnings............................................................................................. 750,000 Less: Treasury Shares (15,000 shares)........................................................... (180,000) Total Equity........................................................................................... €2,385,000 Instructions Complete the following statements and show your computations. (a) The number of ordinary shares issued was _______________. (b) The number of ordinary shares outstanding was ____________. (c) The sales price of the ordinary shares when issued was €____________. (d) The cost per treasury share was €_______________. (e) The average issue price of the ordinary shares was €______________. (f) Assuming that 25% of the treasury shares is sold at €20 per share, the balance in the Treasury Shares account would be €_______________. Ans: N/A, LO: 2, 3, Bloom: AP, Difficulty: Medium, Min: 10, AACSB: Analytic, AICPA BB: None, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Solution 288 (10–15 min.) (a) The number of ordinary shares issued was 330,000. €1,650,000 ÷ €5 par value = 330,000 shares issued. (b) The number of ordinary shares outstanding was 315,000. 330,000 issued less 15,000 in treasury = 315,000 shares outstanding Page 7 of 10 Ehab Abdou (97672930) Ch 12 : Before Exam Review ACC 112 (c) The sales price of the ordinary shares when issued was €1,815,000. Share capital €1,650,000 Plus: share premium 165,000 Total €1,815,000 (d) The cost per treasury share was € 12. €180,000 ÷ 15,000 = €12 per share. (e) The average issue price of the ordinary shares was €5.50. €1,815,000 ÷ 330,000 shares = €5.50 per share. (f) Assuming 25% of the treasury shares is sold at €20 per share, the balance in the Treasury Shares account would be €135,000. 11,250 shares × €12 = €135,000. Ex. 304 The equity section of Foley Corporation at December 31, 2013, included the following: 4% Share capital–preference, $100 par value, cumulative, 10,000 shares authorized, 8,000 shares issued and outstanding...... $ 800,000 Share capital–ordinary, $10 par value, 250,000 shares authorized, 200,000 shares issued and outstanding......................... 2,000,000 Dividends were not declared on the preference shares in 2013 and are in arrears. On September 15, 2014, the board of directors of Foley Corporation declared dividends on the preference shares for 2013 and 2014, to shareholders of record on October 1, 2014, payable on October 15, 2014. On November 1, 2014, the board of directors declared a $.90 per share dividend on the ordinary shares, payable November 30, 2014, to shareholders of record on November 15, 2014. Instructions Prepare the journal entries that should be made by Foley Corporation on the dates indicated below: September 15, 2014 November 1, 2014 October 1, 2014 November 15, 2014 October 15, 2014 November 30, 2014 Ans: N/A, LO: 5, Bloom: AP, Difficulty: Medium, Min: 12, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Page 8 of 10 Ehab Abdou (97672930) Ch 12 : Before Exam Review ACC 112 Solution 304 (12–15 min.) 9/15/14 Cash Dividends ($800,000 ×.04 × 2)................................. 64,000 Preference Dividends Payable................................... 64,000 (To record declaration of dividends in arrears and the current year's preference dividend) 10/1/14 (No entry required.) 10/15/14 Preference Dividends Payable............................................ 64,000 Cash.......................................................................... 64,000 (To record payment of cash preference dividend) 11/1/14 Cash Dividends.................................................................. 180,000 Ordinary Dividends Payable....................................... 180,000 (To record declaration of cash dividend on ordinary shares) 11/15/14 (No entry required.) 11/30/14 Ordinary Dividends Payable............................................... 180,000 Cash.......................................................................... 180,000 (To record payment of ordinary cash dividends) Ex. 309 During 2014, Pine Corporation had the following transactions and events: 1. Issued par value preference shares for cash at par value. 2. Issued par value ordinary shares for cash at an amount greater than par value. 3. Completed a 2 for 1 share split in which the $10 par value ordinary shares were changed to $5 par value shares. 4. Declared a small share dividend when the market value was higher than the par value. 5. Declared a cash dividend. 6. Made a prior period adjustment for understatement of net income. 7. Issued par value ordinary shares for cash at par value. 8. Paid the cash dividend. 9. Issued the ordinary shares required by the share dividend declaration in 4. above. Instructions Indicate the effect(s) of each of the foregoing items on the subdivisions of equity. Present your answers in tabular form with the following columns. Use (I) for increase, (D) for decrease, and (NE) for no effect. Share Share Retained Item Capital Premium Earnings Ans: N/A, LO: 5, 6, 7, Bloom: C, Difficulty: Medium, Min: 9, AACSB: Analytic, AICPA BB: Legal/Regulatory, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting Page 9 of 10 Ehab Abdou (97672930) Ch 12 : Before Exam Review ACC 112 Solution 309 (9–13 min.) Share Share Retained Item Capital Premium Earnings 1. I NE NE 2. I I NE 3. NE NE NE 4. I I D 5. NE NE D 6. NE NE I 7. I NE NE 8. NE NE NE 9. NE NE NE Ex. 312 On January 1, 2014, Dolan Corporation had 60,000 ordinary shares with a $1 par value issued and outstanding. During the year, the following transactions occurred: Mar. 1 Issued 20,000 ordinary shares for $400,000. June 1 Declared a cash dividend of $2 per share to shareholders of record on June 15. June 30 Paid the $2 cash dividend. Dec. 1 Purchased 4,000 ordinary shares for the treasury for $22 per share. Dec. 15 Declared a cash dividend on outstanding shares of $2.25 per share to shareholders of record on December 31. Instructions Prepare journal entries to record the above transactions. Ans: N/A, LO: 5, Bloom: AP, Difficulty: Medium, Min: 12, AACSB: Analytic, AICPA BB: Industry/Sector, AICPA FN: Measurement, AICPA PC: Problem Solving, IMA: FSA Solution 312 (12–17 min.) Mar. 1 Cash................................................................................... 400,000 Share Capital–Ordinary.............................................. 20,000 Share Premium–Ordinary.......................................... 380,000 June 1 Cash Dividends.................................................................. 160,000 Dividends Payable..................................................... 160,000 (80,000 × $2 = $160,000) June 30 Dividends Payable.............................................................. 160,000 Cash.......................................................................... 160,000 Dec. 1 Treasury Shares................................................................. 88,000 Cash.......................................................................... 88,000 Dec. 15 Cash Dividends (76,000 × $2.25)....................................... 171,000 Dividends Payable..................................................... 171,000 Page 10 of 10 Ehab Abdou (97672930)