(2)

OnAugust31,JenksCo.partiallyrefunded$180,000ofitsoutstanding10%notepayable,madeoneyear
agotoArmaStateBankbypaying$180,000plus$18,000interest,havingobtainedthe$198,000byusing
$52,400cashandsigninganewoneyear$160,000notediscountedat9%bythebank.
Instructions
(1)Maketheentrytorecordthepartialrefunding.AssumeJenksCo.makesreversingentrieswhen
appropriate.
(2)PreparetheadjustingentryatDecember31,assumingstraightlineamortizationofthediscount.

(1) Notes Payable.............................................................................

Interest Expense.........................................................................
Discount on Notes Payable (9% $160,000)...........................
Notes Payable.................................................................
Cash.................................................................................

180,000
18,000
14,400

(2) Interest Expense (1/3 $14,400)...............................................

Discount on Notes Payable............................................

4,800

160,000
52,400
4,800

(3)

On January 1, 2010, Solis Co. issued its 10% bonds in the face amount of $3,000,000,
which mature on January 1, 2020. The bonds were issued for $3,405,000 to yield 8%,
resulting in bond premium of $405,000. Solis uses the effective-interest method of
amortizing bond premium. Interest is payable annually on December 31. At December
31, 2010, Solis's adjusted unamortized bond premium is what amount? Please show
computations
$405,000 [($3,000,000 .10) ($3,405,000 .08)] = $377,400
(4)
PresentedbelowisinformationrelatedtoWyrickCompany:
(1.)Thecompanyisgrantedacharterthatauthorizesissuanceof15,000sharesof$100parvaluepreferred
stockand40,000sharesofnoparcommonstock.
(2.)8,000sharesofcommonstockareissuedtothefoundersofthecorporationforlandvaluedbythe
boardofdirectorsat$300,000.Theboardestablishesastatedvalueof$5pershareforthecommonstock.
(3.)5,000sharesofpreferredstockaresoldforcashat$120pershare.
(4.)Thecompanyissues100sharesofcommonstocktoitsattorneysforcostsassociatedwithstartingthe
company.Atthattime,thecommonstockwassellingat$60pershare.
Instructions
Preparethegeneraljournalentriesnecessarytorecordthesetransactions.

1. No entry necessary.
2. Land..................................................................................................
Common Stock.....................................................................

300,000
40,000

Paid-in Capital in Excess of Stated Value..........................

260,000
3. Cash...................................................................................................
Preferred Stock....................................................................
500,000
Paid-in Capital in Excess of ParPreferred Stock..........
100,000

600,000

4. Organization Expense......................................................................
Common Stock.....................................................................
Paid-in Capital in Excess of Stated Value..........................

6,000
5,500

(5)ThestockholdersequitysectionofLemayCorpshowsthefollowingonDec31,2011:
Preferredstock6%$100par,$4000sharesoutstanding
CommonStock$10par,60,000sharesoutstanding
Paidincapitalinexcessofpar
Retainedearnings

$400,000
$600,000
$200,000
$114,000

Totalstockholdersequity
$1,314,000
Instructions:
Assumingthatallofthecompanysretainedearningsaretobepaidoutindividendson13/31/11andthat
preferreddividendswerelastpaidon12/31/09,showhowmuchthepreferredandcommonstockholders
shouldreceiveifthepreferredstockiscumulativeandfullyparticipating.

Dividends in arrears (6% of $400,000)

Current year's dividends
Participating dividend (3%)
[($30,000 $1,000,000) x $400,000]

Preferred
$24,000
24,000

Common
$
36,000

Total
$ 24,000
60,000

12,000
$60,000

18,000
$54,000

30,000
$114,000

(6)

At December 31, 2010, Sager Co. had 1,200,000 shares of common stock outstanding. In
addition, Sager had 450,000 shares of preferred stock which were convertible into
750,000 shares of common stock. During 2011, Sager paid $600,000 cash dividends on
the common stock and $400,000 cash dividends on the preferred stock. Net income for
2011 was $3,400,000 and the income tax rate was 40%. What would be the diluted
earnings per share for 2011 (rounded to the nearest penny)? Please show all
computations.
$3,400,000
= $1.74.
1,200,000 + 750,000
(7)

Presentedbelowareunrelatedcasesinvolvinginvestmentsinequitysecurities.
CaseI.Thefairvalueofthetradingsecuritiesattheendoflastyearwas30%beloworiginalcost,andthis
wasproperlyreflectedintheaccounts.Attheendofthecurrentyear,thefairvaluehasincreasedto20%
abovecost.
CaseII.Thefairvalueofanavailableforsalesecurityhasdeclinedtolessthanfortypercentoftheoriginal
cost.Thedeclineinvalueisconsideredtobeotherthantemporary.
CaseIII.Anequitysecurity,whosefairvalueisnowlessthancost,isclassifiedastradingbutis
reclassifiedasavailableforsale.
Instructions
Indicatetheaccountingrequiredforeachcaseseparately.

Case I. At the end of last year, the company would have recognized an unrealized
holding loss and recorded a Securities Fair Value Adjustment (Trading). At the end
of the current year, the company would record an unrealized holding gain that
would be reported in the other revenue and gains section. The adjustment account
would now have a debit balance.
Case II. When the decline in value is considered to be other than temporary, the loss
should be recognized as if it were realized and earnings will be reduced. The fair
value becomes a new cost basis.
Case III.
The security is transferred at fair value, which is the new cost basis of
the security. The Available-for-Sale Securities account is recorded at fair value, and
the Unrealized Holding LossIncome account is debited for the unrealized loss. The
Trading Securities account is credited for cost.