Martinez Company’s ledger shows the following balances

Martinez Company’s ledger shows the following balances on December 31, 2012.

5% Preferred stock-$10 par value, outstanding 22,280 shares $222,800

Common stock-$100 par value, outstanding 33,420 shares 3,342,000

Retained earnings 701,820

Assuming that the directors decide to declare total dividends in the amount of $296,324, determine how much each class of stock should receive under each of the conditions stated below. One year’s dividends are in arrears on the preferred stock.

(a) The preferred stock is cumulative and fully participating.

Preferred Common

$

$

(b) The preferred stock is noncumulative and nonparticipating.

Preferred Common

$

$

(c) The preferred stock is noncumulative and is participating in distributions in excess of a 7% dividend rate on the common stock. (Note: Do not round rate of participation. Round final answers to zero decimal places, e.g. 12,310.)

Preferred Common

$

$

On January 1, 2012, Barwood Corporation granted 5,480 options to executives. Each option entitles the holder to purchase one share of Barwood’s $5 par value common stock at $50 per share at any time during the next 5 years. The market price of the stock is $73 per share on the date of grant. The fair value of the options at the grant date is $157,800. The period of benefit is 2 years. Prepare Barwood’s journal entries for January 1, 2012, and December 31, 2012 and 2013. (If no entry is required, enter No Entry as the description and 0 as the amount.)

Date Description/Account Debit Credit

1/1/12

12/31/12

12/31/13

Question 7

Rockland Corporation earned net income of $420,000 in 2012 and had 100,000 shares of common stock outstanding throughout the year. Also outstanding all year was $1,120,000 of 10% bonds, which are convertible into 22,400 shares of common. Rockland’s tax rate is 40 percent. Compute Rockland’s 2012 diluted earnings per share. (Round answer to 2 decimal places, e.g. 2.13.)

Question 8

DiCenta Corporation reported net income of $283,000 in 2012 and had 50,000 shares of common stock outstanding throughout the year. Also outstanding all year were 5,710 shares of cumulative preferred stock, each convertible into 2 shares of common. The preferred stock pays an annual dividend of $5 per share. DiCenta’ tax rate is 40%. Compute DiCenta’ 2012 diluted earnings per share. (Round answer to 2 decimal places, e.g. 5.23.)

$

Question

9

Ferraro, Inc. established a stock appreciation rights (SAR) program on January 1, 2012, which entitles executives to receive cash at the date of exercise for the difference between the market price of the stock and the pre-established price of $25 on 5,180 SARs. The required service period is 2 years. The fair value of the SAR’s are determined to be $7 on December 31, 2012, and $14 on December 31, 2013.

Compute Perkins’ compensation expense for 2012.

$

Compute Perkins’ compensation expense for 2013.

$

Question 10

Hillsborough Co. has an available-for-sale investment in the bonds of Schuyler with a carrying (and fair) value of $72,050. Hillsborough determined that due to poor economic prospects for Schuyler, the bonds have decreased in value to $56,100. It is determined that this loss in value is other-than temporary. Prepare the journal entry, if any, to record the reduction in value.

Description/Account Debit Credit

Question 11

(Equity Securities Entries)

Capriati Corporation made the following cash purchases of securities during 2012, which is the first year in which Arantxa invested in securities.

1. On January 15, purchased 11,700 shares of Gonzalez Company’s common stock at $43.55 per share plus commission $2,574.

2. On April 1, purchased 6,500 shares of Belmont Co.’s common stock at $67.60 per share plus commission $4,381.

3. On September 10, purchased 9,100 shares of Thep Co.’s preferred stock at $34.45 per share plus commission $6,383.

On May 20, 2012, Capriati sold 3,900 shares of Gonzalez Company’s common stock at a market price of $45.50 per share less brokerage commissions, taxes, and fees of $3,705. The year-end fair values per share were: Gonzalez $39.00, Belmont $71.50, and Thep $36.40. In addition, the chief accountant of Capriati told you that Capriati Corporation plans to hold these securities for the long term but may sell them in order to earn profits from appreciation in prices.

(a) Prepare the journal entries to record the above three security purchases.

Description/Account Debit Credit

January 15, 2012

April 1, 2012

September 10, 2012

(b) Prepare the journal entry for the security sale on May 20. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

Description/Account Debit Credit

(c) Compute the unrealized gains or losses and prepare the adjusting entries for Capriati on December 31, 2012.

Unrealized gain or loss (For negative numbers use either a negative sign preceding the number, e.g. -45 or parenthesis, e.g. (45).)

$

Description/Account Debit Credit

Question 12

(Journal Entries for Fair Value and Equity Methods)

Presented below are two independent situations.

Prepare all necessary journal entries in 2012 for each situation.

Situation 1

Hatcher Cosmetics acquired 10% of the 219,000 shares of common stock of Ramirez Fashion at a total cost of $16 per share on March 18, 2012. On June 30, Ramirez declared and paid a $81,000 cash dividend. On December 31, Ramirez reported net income of $125,700 for the year. At December 31, the market price of Ramirez Fashion was $18 per share. The securities are classified as available-for-sale.

Date Description/Account Debit Credit

Mar. 18

Jun. 30

Dec. 31

Situation 2

Holmes, Inc. obtained significant influence over Nadal Corporation by buying 25% of Nadal’s 30,300 outstanding shares of common stock at a total cost of $11 per share on January 1, 2012. On June 15, Nadal declared and paid a cash dividend of $44,200. On December 31, Nadal reported a net income of $90,700 for the year.

Date Description/Account Debit Credit

Jan. 1

Jun. 15

Dec. 31

uestion 13

(Equity Method)

Gator Co. invested $1,180,000 in Demo Co. for 25% of its outstanding stock. Demo Co. pays out 40% of net income in dividends each year.

Use the information in the following T-account for the investment in Demo to answer the following questions.

Investment in Demo Co.

1,180,000

145,000

58,000

(a) How much was Gator Co.’s share of Demo Co.’s net income for the year?

$

(b) How much was Gator Co.’s share of Demo Co.’s dividends for the year?

$

(c) What was Demo Co.’s total net income for the year?

$

(d) What was Demo Co.’s total dividends for the year?

$

Question 14

(Fair Value and Equity Method Compared)

Gregory Inc. acquired 20% of the outstanding common stock of Handerson Inc. on December 31, 2012. The purchase price was $1,410,000 for 50,000 shares. Handerson Inc. declared and paid an $0.94 per share cash dividend on June 30 and on December 31, 2013. Handerson reported net income of $733,000 for 2013. The fair value of Handerson’s stock was $36 per share at December 31, 2013.

(a) Prepare the journal entries for Gregory Inc. for 2012 and 2013, assuming that Gregory cannot exercise significant influence over Handerson. The securities should be classified as available-for-sale.

Date Description/Account Debit Credit

12/31/12

06/30/13

12/31/13

(To record dividend)

(b) Prepare the journal entries for Gregory Inc. for 2012 and 2013, assuming that Gregory can exercise significant influence over Handerson.

Date Description/Account Debit Credit

12/31/12

06/30/13

12/31/13

(To record dividend)

(c) At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2013? What is the total net income reported in 2013 under each of these methods? (If answer is zero, please enter a 0 do not leave any fields blank.)

Fair Value Method Equity Method

Investment amount(bal. sheet) $

$

Dividend rev.(inc. statement)

Revenue from investment

(inc. statement)

Question 15

(Call Option)

On January 2, 2012, Jones Company purchases a call option for $480 on Merchant common stock. The call option gives Jones the option to buy 1,000 shares of Merchant at a strike price of $50 per share. The market price of a Merchant share is $50 on January 2, 2012 (the intrinsic value is therefore $0). On March 31, 2012, the market price for Merchant stock is $77 per share, and the time value of the option is $200.

(a) Prepare the journal entry to record the purchase of the call option on January 2, 2012.

Description/Account Debit Credit

(b) Prepare the journal entry(ies) to recognize the change in the fair value of the call option as of March 31, 2012.

Description/Account Debit Credit

(To record the time value change)

(c) What was the effect on net income of entering into the derivative transaction for the period January 2 to March 31, 2012?

Unrealized Holding Gain: $

Question 16

In 2012, Amirante Corporation had pretax financial income of $147,700 and taxable income of $100,500. The difference is due to the use of different depreciation methods for tax and accounting purposes. The effective tax rate is 40%. Compute the amount to be reported as income taxes payable at December 31, 2012.

$

Question 17

At December 31, 2012, Fell Corporation had a deferred tax liability of $728,314, resulting from future taxable amounts of $2,142,100 and an enacted tax rate of 34%. In May 2013, a new income tax act is signed into law that raises the tax rate to 40% for 2013 and future years. Prepare the journal entry for Fell to adjust the deferred tax liability.

Description/Account Debit Credit

Question 18

AMR Corporation (parent company of American Airlines) reported the following for 2009 (in millions).

Service cost $408

Interest cost on P.B.O 701

Return on plan assets 837

Amortization of service cost 75

Amortization of loss 47

Compute AMR Corporation’s 2009 pension expense (in millions).

$ million

Question 19

For Warren Corporation, year-end plan assets were $2,041,800. At the beginning of the year, plan assets were $1,779,200. During the year, contributions to the pension fund were $120,000, and benefits paid were $200,000. Compute Warren’s actual return on plan assets.

$

Question 20

For 2010, Campbell Soup Company had pension expense of $46 million and contributed $253 million to the pension fund. Prepare Campbell Soup Company’s journal entry to record pension expense and funding.

Description/Account Debit Credit

Question 21

Lahey Corp. has three defined-benefit pension plans as follows.

Pension Assets

(at Fair Value) Projected Benefit

Obligation

Plan X $646,200 $545,000

Plan Y 944,400 755,100

Plan Z 590,500 715,900

How will Lahey report these multiple plans in its financial statements?

Pension Asset $

Pension Liability $

Question 22

For 2012, Sampsell Inc. computed its annual postretirement expense as $245,070. Sampsell’s contribution to the plan during 2012 was $191,110. Prepare Sampsell’s 2012 entry to record postretirement expense. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

Description/Account Debit Credit

Question 23

Wertz Corporation decided at the beginning of 2012 to change from the completed-contract method to the percentage-of-completion method for financial reporting purposes. The company will continue to use completed-contract method for tax purposes. For years prior to 2012, pre-tax income under the two methods was as follows: percentage-of-completion $107,000, and completed-contract $74,500. The tax rate is 32%. Prepare Wertz’s 2012 journal entry to record the change in accounting principle. (For multiple debit/credit entries, list amounts from largest to smallest eg 10, 5, 3, 2.)

Description Debit Credit

$

$

$

Question 24

In 2012, Bailey Corporation discovered that equipment purchased on January 1, 2010, for $87,500 was expensed at that time. The equipment should have been depreciated over 5 years, with no salvage value. The effective tax rate is 31%. Prepare Hiatt’s 2012 journal entry to correct the error. (For multiple debit/credit entries, list amounts from largest to smallest eg 10, 5, 3, 2.)

Description Debit Credit

$

$

$

$

Question 25

At January 1, 2012, Beilder Company reported retained earnings of $2,048,700. In 2012, Beilder discovered that 2011 depreciation expense was understated by $370,800. In 2012, net income was $907,680 and dividends declared were $251,240. The tax rate is 36%. Complete the 2012 retained earnings statement for Beilder Company. (List amounts from largest to smallest eg 10, 5, 3, 2.)

BEIDLER COMPANY

Retained Earnings Statement

$

:

:

:

$

Question 26

Simmons Corporation owns stock of Armstrong, Inc. Prior to 2012, the investment was accounted for using the equity method. In early 2012, Simmons sold part of its investment in Armstrong, and began using the fair value method. In 2012, Armstrong earned net income of $77,800 and paid dividends of $96,300. Prepare Simmons’s entries related to Armstrong’s net income and dividends, assuming Simmons now owns 12% of Armstrong’s stock. (For multiple debit/credit entries, list amounts from largest to smallest eg 10, 5, 3, 2.)

Description Debit Credit

$

$

$

Question 27

Manno Corporation has the following information available concerning its postretirement benefit plan for 2012.

Service cost $48,290

Interest cost 54,060

Actual return on plan assets 34,330

Compute Manno’s 2012 postretirement expense.

$

Question 28

Ravonette Corporation issued 310 shares of $13 par value common stock and 160 shares of $48 par value preferred stock for a lump sum of $17,500. The common stock has a market price of $22 per share, and the preferred stock has a market price of $97 per share. Prepare the journal entry to record the issuance. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2. Round answers to zero decimal places, e.g. 16,210.)

Description/Account Debit Credit

Question 29

Garfield Company purchased, as a held-to-maturity investment, $89,300 of the 9%, 10-year bonds of Chester Corporation for $74,163, which provides an 12% return. Prepare Garfield’s journal entries for (a) the purchase of the investment and (b) the receipt of annual interest and discount amortization. Assume effective interest amortization is used. (Round answers to zero decimal places, e.g. 25,000. List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)

Description/Account Debit Credit

(a)

(b)

Question 30

Clydesdale Corporation has a cumulative temporary difference related to depreciation of $597,700 at December 31, 2012. This difference will reverse as follows: 2013, $51,300; 2014, $262,500; and 2015, $283,900. Enacted tax rates are 34% for 2013 and 2014, and 40% for 2015. Compute the amount Clydesdale should report as a deferred tax liability at December 31, 2012.