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COMPREHENSIVE EXAMINATION D
PART 4
(Chapters 15-17)
Problem
D-I
D-II
D-III
D-IV
D-V
D-VI
D-VII
D-VIII
Topic
Treasury Stock.
*Cash Dividends.
Stock Dividends and Stock Splits.
Earnings Per Share Concepts.
Earnings Per Share Computations.
Basic and Diluted Earnings Per Share.
Available-for-Sale Equity Securities.
Trading Securities.
Approximate
Time
20 min.
10 min.
10 min.
10 min.
10 min.
20 min.
15 min.
30 min.
125 min.
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D-2
$ 6,000,000
1,500,000
3,250,000
$10,750,000
Instructions
Prepare journal entries (1, 2, and 4) and show proper disclosure (3) to reflect the following
treasury stock transactions showing how each is accounted for under the cost method. (Show
computations.)
1. On January 4, 2013, having idle cash, Carey Co. repurchased 20,000 shares of its outstanding stock for $500,000.
2. On March 4, Carey sold 5,000 of these reacquired shares at $28 per share.
3. Show the proper disclosures in the stockholders' equity section of the balance sheet issued at
the end of the first quarter, March 31, 2013. Assume net income of $100,000 during the first
quarter.
4. On June 30, 2013 the firm sold 10,000 of the reacquired shares for $21 per share.
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Comprehensive Examination D
D-3
(In each instance, the issuing company has only one class of stock.)
Instructions
Print next to the number of each statement below, the single capital letter of the description which
applies to the statement.
Statements
____ 1.
____ 2.
____ 3.
____ 4.
There is no transfer between retained earnings and capital stock accounts, other than
to the extent occasioned by legal requirements.
____ 5.
____ 6.
____ 7.
Retained earnings in the amount of the distribution are transferred to capital stock, in
some instances in an amount in excess of that required by the laws of the state of
incorporation.
____ 8.
____ 9.
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D-4
____ 1.
____ 2.
Common stock.
____ 3.
____ 4.
____ 5.
____ 6.
Convertible bonds.
____ 7.
____ 8.
Notes payable.
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Comprehensive Examination D
D-5
$3,000,000
1,000,000
shares
$1,600,000
$2,500,000
84,000
shares
Instructions
Compute (a) basic earnings per share, and (b) diluted earnings per share.
(b)
December 31, 2012: Norwin receives a $.75 per share dividend from Oslo, and Oslo
announces a net income for 2012 of $250,000.
(c)
December 31, 2012: According to The Wall Street Journal, Oslo common is selling for $27
per share. Norwin's management views this decline as being only temporary in nature.
Oslo's common is Norwin's only available-for-sale security.
(d)
February 15, 2013: Norwin sells 500 of the shares purchased on January 2, 2012 at $32 per
share.
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D-6
January 1, 2012
September 1, 2012
September 5, 2012
Purchased 5,000 shares of Hayes, Inc. common stock for $30 per share.
The broker's commission on the purchase amounted to $2,000.
July 1, 2013
Milton sold 1/2 of the Hayes, Inc. common stock at $32 per share. Broker's
commissions, taxes, and fees were $1,000.
December 1, 2013
Milton purchased 600 shares of Ramirez, Inc. common stock at $45 per
share. Broker's commission was $500.
(b)
Present the financial statement disclosure (balance sheet and income statement) of Milton
Company's transactions in trading securities for each of the years 2012 and 2013.
Appropriate financial statement subheadings must be disclosed.
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Comprehensive Examination D
D-7
500,000
2. Cash ................................................................................................
Treasury Stock ....................................................................
Paid-in Capital from Treasury Stock ....................................
140,000
3. Stockholders' equity:
Common stock, $10 par, 1,000,000 shares authorized,
600,000 shares issued, 585,000 shares outstanding
Paid-in capital in excess of par value
Paid-in capital from treasury stock
Retained earnings
500,000
125,000
15,000
$ 6,000,000
1,500,000
15,000
3,350,000
10,865,000
(375,000)
$10,490,000
4. Cash ................................................................................................
Paid-in Capital from Treasury Stock ...............................................
Retained Earnings ...........................................................................
Treasury Stock ....................................................................
210,000
15,000
25,000
250,000
230,000
136,000
94,000
Computations:
Arrears$800,000 5% 2
Preference$800,000 5%
Common$1,400,000 5%
Participating 2%*
Preferred
$80,000
40,000
16,000
$136,000
Common
$ 70,000
24,000
$ 94,000
Total
$ 80,000
40,000
70,000
40,000
$230,000
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D-8
4. E
5. A
6. B
7. F
8. A
9. F
D
BD
N
D
5.
6.
7.
8.
BD
D
D
N
$2.40
500,000 + 70,000
$2.35
$3,300,000 $160,000
Basic EPS = = $2.09
1,500,000
(b)
Start
Convertible preferred
Convertible bonds
Options
Shares
1,500,000
80,000
75,000
14,000**
1,669,000
Earnings
$3,140,000
160,000
140,000*
0
$3,440,000
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Comprehensive Examination D
D-9
(b)
30,000
Cash ............................................................................................
Dividend Revenue ............................................................
750
30,000
750
No entry to accrue investee profits because fair value, not equity, method is being used.
(c)
(d)
3,000
16,000
3,000
1000
15,000
294,000
294,000
148,500
7,500
147,000
9,000
September 5, 2012
Equity Investments ................................................................................
Cash ..........................................................................................
152,000
13,500
152,000
13,500
4,500
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79,000
3,000
76,000
December 1, 2013
Equity Investments ...............................................................................
Cash .........................................................................................
27,500
13,500
27,500
13,500
14,200
14,200
December 31,
Balance Sheet
Current assets:
Equity Investments, at fair value
Income Statement
Other revenue and gains:
Interest Revenue
Unrealized holding gain on trading securities
Gain on sale of securities
Other expenses and losses:
Loss on sale of securities
2012
2013
$303,500
$345,200
$13,500
4,500
$13,500
14,200
3,000
7,500