Reference no: EM133207180

Financial Accounting Questions -

Question 1 - On January 1, 2021, Lambert Company purchased $107,000 of 8% bonds at face value. The bonds are to be held-to-maturity. The bonds pay interest semiannually on January 1 and July 1.

Required -

a. Prepare the appropriate journal entry to record the acquisition of the bonds.

b. Record the first two interest payments (ignore year-end accruals).

Question 2 - On July 1, 2021, Myers Inc. purchased 8,000 shares of the outstanding common stock of Cotton Corporation at a cost of $175,000. Cotton had 40,000 shares of outstanding common stock. The total book value and total fair value of Cotton's individual net assets on July 1, 2021, are both $900,000. The total fair value of the 40,000 shares of Cotton's common stock on December 31, 2021, is $950,000. Both companies have a January through December fiscal year. The following data pertains to Cotton Corporation during 2021:

Dividends declared and paid, January 1-June 30 $15,000

Dividends declared and paid, July 1-December 31 $15,000

Net income, January 1-June 30 $19,000

Net income, July 1-December 31 $24,000

Required -

a. Prepare the necessary entries for 2021 under the equity method (other than for the purchase).

b. Assume the securities were accounted for under the fair value (through net income) method.

Prepare any necessary entries for 2021 (other than for the purchase) that would be required.

Question 3 - On August 1, 2021, Starlight borrowed $21 million cash to fund a new building. The loan was made by Main Street Bank under a non-committed short-term financing arrangement. Starlight issued a 9-month, 8% promissory note. Interest was payable at maturity. Starlight's fiscal period is the calendar year.

Required -

a. Prepare the journal entry for the issuance of the note by Starlight.

b. Prepare the appropriate adjusting entry for the note by Starlight on December 31, 2021.

c. Prepare the journal entry for the payment of the note at maturity.

Question 4 - The following selected transactions relate to liabilities of Portland Corporation for 2021. Portland's fiscal year ends on December 31.

1. On January 25, Portland received $9,000 from Gleim Construction toward the purchase of $72,000 of windows to be delivered on February 7.

2. On February 4, Portland received $6,500 of refundable deposits relating to containers used to transport windows.

3. On February 7, Portland delivered the windows to Gleim Construction and received the balance of the purchase price.

4. First quarter credit sales totaled $720,000. The state sales tax rate is 5% and the local sales tax rate is 3%.

Required - Prepare journal entries for the above transactions.

Question 5 - On July 1, 2021, Highland Corporation issued $100 million of its 6%, bonds for $95 million. The bonds were priced to yield 8%. The bonds are dated July 1, 2021. Interest is payable semi-annually on December 31 and June 30. Highland records interest at the effective rate. Highland records interest at the effective rate.

Required -

a. Prepare the journal entry to record interest on December 31, 2021 (the first interest payment).

b. Prepare the journal entry to record interest on June 30, 2022 (the second interest payment).

Question 6 - Lee, Inc. contracted with Gladstone Corporation to have constructed a special machine. The machine was completed and ready for use on January 1, 2021. Lee paid for the machine by issuing a $400,000 note due in three years. Interest, specified at 2%, was payable annually on December 31 of each year. The cash market price of the machine was unknown. It was determined by comparison with similar transactions for which 6% was a reasonable rate of interest.

Required -

a. Prepare the journal entry on January 1, 2021, for Gladstone Corporation's sale of the machine.

b. Prepare an amortization schedule for the three-year term of the note.

c. Prepare the journal entries to record (a) interest for each of the three years and (b) receipt of payment of the note at maturity.

Question 7 - On January 1, 2021, Garcia Inc. had the following account balances in its shareholders' equity accounts.

Common stock, $1 par, 250,000 shares issued 250,000

Paid-in capital-excess of par, common 500,000

Paid-in capital-excess of par, preferred 100,000

Preferred stock, $100 par, 10,000 shares outstanding 1,000,000

Retained earnings 2,000,000

Treasury stock, at cost, 5,000 shares 25,000

During 2021, Garcia Inc. had several transactions relating to common stock.

January 15: Declared a property dividend of 100,000 shares of Delaney

Company (book value $10 per share, fair value $9 per share).

February 17: Distributed the property dividend.

April 10: A 2-for-1 stock split was declared and distributed on outstanding common stock and effected in the form of a stock dividend. The fair value of the stock was $4 on this date.

July 18: Declared and distributed a 3% stock dividend on outstanding common stock. The fair value is $5 per share.

December 1: Declared a 50 cents per share cash dividend on the outstanding common shares.

December 20: Paid the cash dividend.

Required - Record the above transactions and events in journal entry format.

Question 8 - In 2021, Green Corporation completed the treasury stock transactions listed below.

February 2: Reacquired 75,000 shares at $11.

March 17: Sold 24,000 shares at $13.

May 17: Sold 27,000 shares at $9.

Green had issued 100,000 shares of its $1 par common stock for $10 several months ago.

Required - Prepare the journal entries to record the above transactions, using the cost method.

Question 9 - Following are the income statement and some additional information for Good Health Company.

Good Health Company Income Statement For the Year Ended December 31, 2021

Net sales		$11,000
Cost of goods sold		(1,600)
Gross margin		9,400
Operating expenses	$3,000
Depreciation expense	1,000	(4,000)
Income before taxes		5,400
Income taxes		(1,500)
Net income		$3,900

All sales were on credit and accounts receivable decreased by $1,100 in 2021 compared to 2020. Merchandise purchases were on credit with a decrease in accounts payable of $800 during the year. Ending inventory was $500 larger than beginning inventory. Income taxes payable increased $300 during the year. All operating expenses were paid for in cash.

Required - Prepare the cash flows from operating activities section of the statement of cash flows using the direct method. (NOTE: Do not prepare the investing and financing activities sections.)

Question 10 - Partial balance sheets and additional information are listed below for Powers Company.

Powers Company Partial Balance Sheets as of December 31

Assets	2021	2020
Cash	$40,000	$20,000
Accounts receivable	74,000	85,000
Inventory	36,000	30,000
Liabilities
Accounts payable	$52,000	$60,000

Additional information for 2021:

Net income was $93,000.

Depreciation expense was $22,000.

Required - Prepare the operating activities section of the statement of cash flows for 2021 using the indirect method.

Question 11 - The transactions described below relate to gift cards sold by Fancy Foods Company during 2021. Fancy Foods fiscal year ends on December 31.

a. In October 2021, sold $5,000 of gift cards, and redeemed $800 of those gift cards.

b. In November 2021, sold $6,500 of gift cards, and redeemed $1,700 of October gift cards and $700 of November gift cards.

c. In December 2021, sold $5,500 of gift cards, and redeemed $500 of October gift cards, $2,000 of November gift cards, and $400 of December gift cards.

d. Fancy Foods views a gift card to be "broken" (with a remote probability of redemption) two months after the end of the month in which it is sold. Thus, an unredeemed gift card sold at any time during July would be viewed as broken as of September 30.

Required - Prepare all appropriate journal entries to be recorded only during the month of December 2021 relevant to gift card sales, gift card redemptions, and gift card breakage. (NOTE: Do not prepare journal entries for October and November.)