Use the following to answer questions 1-2:
Cox Co. issued $100,000 of ten-year, 10% bonds that pay interest semiannually. The bonds are sold to yield 8%.
1.One step in calculating the issue price of the bonds is to multiply the principal by the table value for
A)10 periods and 10% from the present value of 1 table.
B)20 periods and 5% from the present value of 1 table.
C)10 periods and 8% from the present value of 1 table.
D)20 periods and 4% from the present value of 1 table.
2.Another step in calculating the issue price of the bonds is to
A)multiply $10,000 by the table value for 10 periods and 10% from the present value of an annuity table.
B)multiply $10,000 by the table value for 20 periods and 5% from the present value of an annuity table.
C)multiply $10,000 by the table value for 20 periods and 4% from the present value of an annuity table.
D)none of these.
3.Stone, Inc. issued bonds with a maturity amount of $200,000 and a maturity ten years from date of issue. If the bonds were issued at a premium, this indicates that
A)the effective yield or market rate of interest exceeded the stated (nominal) rate.
B)the nominal rate of interest exceeded the market rate.
C)the market and nominal rates coincided.
D)no necessary relationship exists between the two rates.
Use the following to answer questions 4-6:
On January 1, 2007, Bleeker Co. issued eight-year bonds with a face value of $1,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are:
Present value of 1 for 8 periods at 6%.627
Present value of 1 for 8 periods at 8%.540
Present value of 1 for 16 periods at 3%.623
Present value of 1 for 16 periods at 4%.534
Present value of annuity for 8 periods at 6%6.210
Present value of annuity for 8 periods at 8%5.747
Present value of annuity for 16 periods at 3%12.561
Present value of annuity for 16 periods at 4%11.652
4.The present value of the principal is
5.The present value of the interest is
6.The issue price of the bonds is
7.Amstop Company issues $20,000,000 of 10-year, 9% bonds on March 1, 2007 at 97 plus accrued interest. The bonds are dated January 1, 2007, and pay interest on June 30 and December 31. What is the total cash received on the issue date?
8.A company issues $20,000,000, 7.8%, 20-year bonds to yield 8% on January 1, 2007. Interest is paid on June 30 and December 31. The proceeds from the bonds are $19,604,145. Using effective-interest amortization, how much interest expense will be recognized in 2007?
9.The December 31, 2006, balance sheet of Eddy Corporation includes the following items:
9% bonds payable due December 31, 2015$1,000,000
Unamortized premium on bonds payable27,000
The bonds were issued on December 31, 2005, at 103, with interest payable on July 1 and December 31 of each year. Eddy uses straight-line amortization. On March 1, 2007, Eddy retired $400,000 of these bonds at 98 plus accrued interest. What should Eddy record as a gain on retirement of these bonds? Ignore taxes.
10.On January 1, 2001, Gonzalez Corporation issued $4,500,000 of 10% ten-year bonds at 103. The bonds are callable at the option of Gonzalez at 105. Gonzalez has recorded amortization of the bond premium on the straight-line method (which was not materially different from the effective-interest method).
On December 31, 2007, when the fair market value of the bonds was 96, Gonzalez repurchased $1,000,000 of the bonds in the open market at 96. Gonzalez has recorded interest and amortization for 2007. Ignoring income taxes and assuming that the gain is material, Gonzalez should report this reacquisition as
A)a loss of $49,000.
B)a gain of $49,000.
C)a loss of $61,000.
D)a gain of $61,000.
Use the following to answer questions 11-12:
Presented below is information related to Edis Corporation:
Common Stock, $1 par$4,300,000
Paid-in Capital in Excess of Par—Common Stock550,000
Preferred 8 1/2% Stock, $50 par2,000,000
Paid-in Capital in Excess of Par—Preferred Stock400,000
Treasury Common Stock (at cost)150,000
11.The total stockholders’ equity of Edis Corporation is
12.The total paid-in capital (cash collected) related to the common stock is
13.Bleeker Company issued 10,000 shares of its $5 par value common stock having a market value of $25 per share and 15,000 shares of its $15 par value preferred stock having a market value of $20 per share for a lump sum of $480,000. How much of the proceeds would be allocated to the common stock?
14.Renfro Corporation started business in 1999 by issuing 200,000 shares of $20 par common stock for $36 each. In 2004, 20,000 of these shares were purchased for $52 per share by Renfro Corporation and held as treasury stock. On June 15, 2008, these 20,000 shares were exchanged for a piece of property that had an assessed value of $810,000. Renfro’s stock is actively traded and had a market price of $60 on June 15, 2008. The cost method is used to account for treasury stock. The amount of paid-in capital from treasury stock transactions resulting from the above events would be
15.King Co. issued 100,000 shares of $10 par common stock for $1,200,000. King acquired 8,000 shares of its own common stock at $15 per share. Three months later King sold 4,000 of these shares at $19 per share. If the cost method is used to record treasury stock transactions, to record the sale of the 4,000 treasury shares, King should credit
A)Treasury Stock for $76,000.
B)Treasury Stock for $40,000 and Paid-in Capital from Treasury Stock for $36,000.
C)Treasury Stock for $60,000 and Paid-in Capital from Treasury Stock for $16,000.
D)Treasury Stock for $60,000 and Paid-in Capital in Excess of Par for $16,000.
16.The conversion of preferred stock into common requires that any excess of the par value of the common shares issued over the carrying amount of the preferred being converted should be
A)reflected currently in income, but not as an extraordinary item.
B)reflected currently in income as an extraordinary item.
C)treated as a prior period adjustment.
D)treated as a direct reduction of retained earnings.
17.Proceeds from an issue of debt securities having stock warrants should NOT be allocated between debt and equity features when
A)the market value of the warrants is not readily available.
B)exercise of the warrants within the next few fiscal periods seems remote.
C)the allocation would result in a discount on the debt security.
D)the warrants issued with the debt securities are nondetachable.
18.Stock warrants outstanding should be classified as
B)reductions of capital contributed in excess of par value.
D)none of these.
19.Vittly Corporation owned 900,000 shares of Nixon Corporation stock. On December 31, 2007, when Vittly’s account “Investment in Common Stock of Nixon Corporation” had a carrying value of $5 per share, Vittly distributed these shares to its stockholders as a dividend. Vittly originally paid $8 for each share. Nixon has 3,000,000 shares issued and outstanding, which are traded on a national stock exchange. The quoted market price for a Nixon share was $7 on the declaration date and $9 on the distribution date.
What would be the reduction in Vittly’s stockholders’ equity as a result of the above transactions?
20.The stockholders’ equity section of Lawton Corporation as of December 31, 2006, was as follows:
On March 1, 2007, the board of directors declared a 15% stock dividend, and accordingly 1,500 additional shares were issued. On March 1, 2007, the fair market value of the stock was $6 per share. For the two months ended February 28, 2007, Lawton sustained a net loss of $10,000.
What amount should Lawton report as retained earnings as of March 1, 2007?
21.On January 1, 2007, Golden Corporation had 110,000 shares of its $5 par value common stock outstanding. On June 1, the corporation acquired 10,000 shares of stock to be held in the treasury. On December 1, when the market price of the stock was $8, the corporation declared a 10% stock dividend to be issued to stockholders of record on December 16, 2007. What was the impact of the 10% stock dividend on the balance of the retained earnings account?
Use the following to answer questions 12-13:
Tomlin, Inc. has outstanding 300,000 shares of $2 par common stock and 60,000 shares of no-par 8% preferred stock with a stated value of $5. The preferred stock is cumulative and nonparticipating. Dividends have been paid in every year except the past two years and the current year.
22.Assuming that $150,000 will be distributed as a dividend in the current year, how much will the common stockholders receive?
23.Assuming that $183,000 will be distributed, and the preferred stock is also participating, how much will the common stockholders receive?
24.The major difference between convertible debt and stock warrants is that upon exercise of the warrants
A)the stock is held by the company for a defined period of time before they are issued to the warrant holder.
B)the holder has to pay a certain amount of cash to obtain the shares.
C)the stock involved is restricted and can only be sold by the recipient after a set period of time.
D)no paid-in capital in excess of par can be a part of the transaction.
Use the following to answer questions 25-27:
Gomez Corporation issued $3,000,000 of 9%, ten-year convertible bonds on July 1, 2007 at 96.1 plus accrued interest. The bonds were dated April 1, 2007 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2008, $600,000 of these bonds were converted into 500 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion.
25.If “interest payable” were credited when the bonds were issued, what should be the amount of the debit to “interest expense” on October 1, 2007?
26.What should be the amount of the unamortized bond discount on April 1, 2008 relating to the bonds converted?
27.What was the effective interest rate on the bonds when they were issued?
D)Cannot determine from the information given.
28.Darby Corporation issued at a premium of $5,000 a $100,000 bond issue convertible into 2,000 shares of common stock (par value $40). At the time of the conversion, the unamortized premium is $2,000, the market value of the bonds is $110,000, and the stock is quoted on the market at $60 per share. If the bonds are converted into common, what is the amount of paid-in capital in excess of par to be recorded on the conversion of the bonds?
29.On July 4, 2007, Diaz Company issued for $4,200,000 a total of 40,000 shares of $100 par value, 7% noncumulative preferred stock along with one detachable warrant for each share issued. Each warrant contains a right to purchase one share of Diaz $10 par value common stock for $15 per share. The stock without the warrants would normally sell for $4,100,000. The market price of the rights on July 1, 2007, was $2.50 per right. On October 31, 2007, when the market price of the common stock was $19 per share and the market value of the rights was $3.00 per right, 16,000 rights were exercised. As a result of the exercise of the 16,000 rights and the issuance of the related common stock, what journal entry would Diaz make?
30.Sloane Corporation offered detachable 5-year warrants to buy one share of common stock (par value $5) at $20 (at a time when the stock was selling for $32). The price paid for 2,000, $1,000 bonds with the warrants attached was $205,000. The market price of the Sloane bonds without the warrants was $180,000, and the market price of the warrants without the bonds was $20,000. What amount should be allocated to the warrants?
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