Answers to 2/24 test on ch 11,12 and part of 10

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last name / first name section (8:15 or 10:15)

1)On January 1, 2005 we issue 1000 shares of $6 par common sock for $29000

2) On 1/1/2005 we also issue 400 shares of $100 par 8% cumulative preferred for $52000

3) On 9/1/2005 we buy back 300 shares of common for $35/share

4) On 10/1/2005 we reissue 100 shares of the common for $36/share

5) On 12/1/2005 we reissue 50 shares of common for $20/share

Give J/E’s for transactions 1-5


date accounts dr cr
1 1/1/05 cash 29000
..................................cs 6000
................................apic-cs 23000
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2 1/1/2005 cash 52000
.......................ps 40000
.......................apic - ps 12000



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3 9/1/2005 t/s 10500
.....................cash 10500

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4 10/1/2005 cash 3600
................................t/s 3500
................................apic t/s 100

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5
12/1/2005
cash 1000
......................t/s 1750
apic t/s 100
apic c/s 650

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6) Based on the above, if net income per our income statement was $400,000 compute the earnings per share

400,000-(40000*.08)/
1000*8/12+700*1/12+800*2/12+850*1/12

1000 0.666667 666.6667
700 0.083333 58.33333
800 0.166667 133.3333
850 0.083333 70.83333

=>average #of shares= 929.1667


400000 - 32000 = 396.0538

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7-9) Based on transactions 1-3 above, assume that retained earnings were $40,000 at 9/30/2005, give the owners equity section of the balance sheet at 9/30/2005



ps 40000
cs 6000
46000
............apic-ps..............12000
............apic-cs..............23000
total apic....35000
............ 81000
r/e......... 40000
............121000
less t/s...<10500>

Equity
9/30/2005..$110500


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10) Based on transaction #1 only, please give the j/e for declaration only if we had declared an 8% stock dividend on 2/1/2005 and the stock is selling for $50 per share

10) 2/1/2005 r/e 4000
...........................stock div to be distrib 480
...............................apic s/d 3520


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11) If discontinued operations showed a profit of 300,000 net of tax
and our tax rate is 20%, what is our gross income on the discontinue
operations

300,000/(1-20%)=375,000

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12) For what reason do we break out discontinued operations and
extraordinary items on our income statement? Write 4 lines maximum

we want to predict the future the future so we break out discontinued and extraordinary items which are clearly not basis for making such a prediction

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13) This does not relate to any other question: On 1/1/2001 we issued 1000 shares of $100 par 6% cumulative preferred for $120,000. The only dividends that we paid of any type since then was $3000 of preferred dividends in 2003. In 2004 we want to pay dividends to our common shareholders, how much do we first have to pay to the preferred shareholders?

total pref divs yrs1-4 must = 100,000*.06=6000/year*4yrs= 24000
less paid 3000 =

$21000

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14a) Multiple choice but you have to explain your answer for half the credit :
Last year we forgot to record depreciation of $2000 and as a result have to do a prior period adjustment. What effect on our income for the current year.
a)increase net income b) no effect
c) decrease net income d) can not be determined

b) no effect

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14b) Explain your answer to the above
the prior period adjust only affects the statement of r/e

the prior period adjust only affects the statement of r/e


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15) Based on number 14: Assuming that our tax rate is 30%.
How much will our prior period adjustment be?

2000*(1-30%)=2000*.7= 1400 reduction in r/e

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16-20) Give the first 5 journal entries if we issue $2million
of 3% bonds on 5/1/2007 for $2million.
date accounts dr cr
16)
5/1/2007 cash 200000
....................bp 2000000
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17)
11/1/07 interest exp 30000
......................cash 30000
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18)
12/31/07 interest exp 10000
.........................interest payable 10000
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19)
5/1/2008
interest exp 20000
interest payable 10000
..........................cash 30000
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20)
11/1/08 interest exp 30000
...................cash 30000