Supplemental Instruction Handouts Financial Accounting Review Chapters 12, 13, 14 and 16

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Supplemental Instruction Handouts Financial Accounting Review Chapters 12, 13, 14 and 16 1.

1 Supplemental Instruction Handouts Financial Accounting Review Chapters 12, 13, 14 and Coach Motor Company is authorized by its articles of incorporation to issue an unlimited number of common shares and 50,000 shares of $10, noncumulative preferred. The company completed the following transactions: 2019: February 2 nd issued for cash 100,000 common shares at $3 per share. February 28 th gave the corporations promoters 40,000 common shares for their services in organizing the corporation. The director s valued the services at $120,000. March 10 th issued 100,000 common shares in exchange for the following assets with the indicated reliable market values: land, $70,000; buildings, $130,000; and machinery, $100,000. April 1 st issued for cash 6,000 preferred shares at $100 per share. May 1 st the board of directors declared a $10 cash dividend to preferred shares and $0.20 per share cash dividend to outstanding common shares, payable on May 25 th to the May 16 th shareholders of record. May 25 th paid the previously declared dividends. June 5 th the board declared a 10% share dividend, distributable on July 2 nd to the June 20 th shareholders of record. The shares were selling at $5 per share. July 2 nd distributed the share dividend declared on June 5 th. August 5 th the board of directors voted to split the corporation s shares two for one. The split was completed on August 5. September 13 th purchased and retired 5,000 common shares for $1.50 per share. October 26 purchased and retired 15,000 common shares for $2 per share. December 31 st closed the Income Summary account. A $362,000 profit was earned. A) Prepare the journal entries for these transactions. B) Prepare the Statement of Changes in Equity for the year ended December 31, C) Prepare the Equity Section of the Balance Sheet for December 31, 2019.

2 General Journal Page Date Account Titles and Explanations PR Debit Credit

3 General Journal Page Date Account Titles and Explanations PR Debit Credit

4 1 B) 1 C)

5 2. Alphalon Cookware Company has 4,000 outstanding shares of $8 preferred and 56,000 shares of common. During a seven year period, the company paid out the following amounts in dividends: 2019 $ , , , , ,000 A) Calculate the amount of dividends each class would get if the preferred shares were noncumulative. Year Preferred Common Totals B) Calculate the amount of dividends each class would get if the preferred shares were cumulative. Year Preferred Common Totals

6 3. The KMD Company reported a profit of $1,200,000 in 2020 and declared $300,000 in preferred dividends. The following changes in common shares outstanding occurred during the year: January 1 150,000 common shares were outstanding. March 1 sold 50,000 common shares. May 1 purchased and retired 25,000 common shares. August 1 declared and issued a 15% common share dividend. September 1 completed a two for one share split. Calculate the weighted average number of common shares outstanding during the year and earnings per share. (Round EPS calculations to two decimal places) EPS =

7 4. Helmer Co. issued a group of bonds on January 1 st, 2019, that pay interest semiannually on June 30 th and December 31 st. The face value of the bond is $40,000, the annual contract rate is 8%, and the bonds mature in 3 years. These bonds were issued at their par value on January 1 st, Give the general journal entry that would be required on the date of issuance of the bond and the first interest payment dates. General Journal Page Date Account Titles and Explanations PR Debit Credit

8 5. Helm Co. has a group of bonds dated July 1 st, 2019, that pays interest semiannually on December 31 st and June 31 st. The face value of the bond is $40,000, the annual contract rate is 8%, and the bonds mature in 3 years. These bonds were issued at their par value on October 1 st, Give the general journal entry that would be required on the date of issuance of the bond and the first two interest payment dates. General Journal Page Date Account Titles and Explanations PR Debit Credit

9 6. Reason Co. issued a group of bonds on January 1 st, 2019, that pay interest semiannually on June 30 th and December 31 st. The face value of the bond is $80,000, the annual contract rate is 8%, and the bonds mature in 3 years. On January 1 st, 2019, these bonds were issued at a market rate of 6% semiannually. a) Calculate the issue price of the bond. b) Calculate the total bond interest expense that will be recognized over the life of these bonds. c) Using the effective interest method, calculate the interest expense for the first two interest payments. d) Give the general journal entry that would be required on the date of issuance of the bond and the first two interest payment dates. General Journal Page Date Account Titles and Explanations PR Debit Credit

10 7. Stark Co. issued a group of bonds on January 1 st, 2019, that pay interest semiannually on June 30 th and December 31 st. The face value of the bond is $100,000, the annual contract rate is 6%, and the bonds mature in 3 years. On January 1 st, 2019, these bonds were issued at a market rate of 10% semiannually. a) Calculate the issue price of the bonds. b) Calculate the total bond interest expense to be recognized over the life of these bonds. c) Using the effective interest method, calculate the interest expense for the first two interest payments. d) Give the general journal entry that would be required on the date of issuance of the bond and the first two interest payment dates. General Journal Page Date Account Titles and Explanations PR Debit Credit

11 8. Tanaka Company s balance sheet and income statement are as follows: Tanaka Company Comparative Balance Sheet December 31, 2019 December Assets Cash $53,925 $ 31,800 Accounts Receivable 19,425 23,250 Merchandise Inventory 175, ,875 Equipment 105,450 76,500 Accumulated Depreciation (48,300) (30,600) Totals $305,850 $240,825 Liabilities and Shareholders Equity Accounts Payable $38,475 $ 35,625 Income Taxes Payable 4,500 6,750 Common Shares 207, ,000 Retained Earnings 55,875 33,450 Totals $305,850 $240,825 Tanaka Company Income Statement For the year ended December 31 st, 2019 Sales $609,750 Cost of Goods Sold 279,000 Gross Profit $330,750 Operating Expenses: Depreciation Expense $ 17,700 Other Expenses 179,775 Total Operating Expenses 197,475 Income From Operations $133,275 Income Taxes 44,850 Profit $ 88,425 Additional information regarding Tanaka s activities during the year 2019: a) Purchased equipment for $28,950. b) Issued 3,000 common shares at $14 per share. c) Declared and paid $66,000 of cash dividends. Prepare a cash flow statement using the indirect method for the year ended December 31, 2019.

Supplemental Instruction Handouts Financial Accounting Review Chapters 12, 13, 14 and 16

Supplemental Instruction Handouts Financial Accounting Review Chapters 12, 13, 14 and 16 1. Coach Motor Company was legally incorporated on January 2 nd, 2019. Its articles of incorporation granted it