ACC* - Accounting ACC* M115 Lecture Notes - Lecture 7: Alan Bond, No Entry, Retained Earnings

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redminnow421

6 Jun 2020

School

CCC

Department

ACC* - Accounting

Course

ACC* - Accounting ACC* M115

Professor

Murphy

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Document Summary

Cost method used to record purchase / resale of ts. Ts debited for purchase price (cost) of stock. Any difference btwn cost & selling price is d/cr. to paid-in capital from sale of ts. Paid-in capital from sale has normal credit balance. If pic is emptied & you"re selling ts for a loss, debit retained earnings instead. Stock split corporation reduces par or stated value of common stock & issues a proportionate number of additional shares. Objective: to reduce market price per share, attracting investors + broadening stockholders. Eps = (net income preferred dividends) / average number of common shares. Preferred dividends are subtracted because the numerator is only based on common shares. Bonds & notes (long-term liabilities); deals with a company issuing payables. Bond form of interest-bearing note, used by corporations to borrow money on a long- term basis. Consider which plan creates the highest eps most attractive for common stockholders.

Related Questions

1-)Please refer to the following information for PeartreeCompany: â¢ Common stock, $1.00 par, 100,000 issued, 95,000outstanding â¢ Paid-in capital in excess of par: $2,150,000 â¢Retained earnings: $910,000 â¢ Treasury stock: 5,000 sharespurchased at $20 per share If Peartree resold 1,000 shares oftreasury stock for $24 per share, what journal entry would berequired?

A) Debit Cash $24,000 and credit Treasury stock $24,000.

B) Debit Treasury stock $24,000 and credit Cash $24,000.

C) Debit Treasury stock $20,000, debit Paid-in capital $2,000and credit Cash $24,000.

D) Debit Cash $24,000, credit Treasury stock $20,000 and creditPaid-in capital $4,000.

2-)Which of the following is a common reason for companies toretire preferred stock?

A) To stop paying out dividends to preferred shareholders

B) To increase stockholders' equity

C) To reward the preferred shareholders

D) To make a profit on the retirement of preferred stock

3-)At January 1, 2014, Foxmore Company had 80,000 shares ofcommon stock outstanding and no preferred stock. During the year,they issued 40,000 additional shares of common stock. At December31, 2014, Foxmore had 120,000 shares of common stock outstanding,and no preferred stock. In addition, Foxmore reported the followingresults for the year 2014: Sales revenues from regular businessoperations $3,000,000 Cost of goods sold 900,000 Operating expensesfrom their regular business operations 600,000 Gain on disposal ofseveral items of property, plant & equipment 15,000 Income taxexpense on continuing operations 330,000 Loss on the termination ofa discontinued business segment, net of tax 120,000 Losses ondamage caused by earthquake, net of tax 280,000 At December 31,2014, how much is the earnings per share for income (loss) fromcontinuing operations? (Please round all calculations to thenearest cent.)

A) $(1.20)

B) $10.65 C)

$7.85

D) $11.85

4-)) A corporation has net income of $365,000 for the currentyear. It paid its required preferred dividend of $17,500 and had noother stock transactions during the year. The average number ofcommon shares outstanding during the year was 69,500. What is theearnings per share?

A) $1.00

B) $4.37

C) $5.84

D) $5.00

5-)Qtopia Company uses the direct method to prepare itsstatement of cash flows. It has reported sales revenues of $100,000on its income statement for the year 2012. If the balance inaccounts receivable has gone up by $4,000 during the year, then$4,000 will have to be added to $100,000 to calculate collectionsfrom customers. True or false

6-)Qtopia Company uses the direct method to prepare itsstatement of cash flows. It has reported operating expenses of$21,000 on its income statement for the year 2012. If the balancein accrued liabilities has gone up by $1,000 during the year, then$1,000 will have to be added to $21,000 as part of the process tocalculate payments to suppliers for operating expenses. true orfalse.

7-Please refer to the following information for Petra SalesCompany: â¢ Common stock, $1.00 par, 200,000 issued, 180,000outstanding â¢ Paid-in capital in excess of par: $1,600,000 â¢Retained earnings: $2,440,000 â¢ Treasury stock: 20,000 sharespurchased at $12 per share If Petra Sales sells 10,000 shares oftreasury stock at $14 per share, the company will record a gain onthe sale of treasury stock of $20,000. True or false

8- Public companies are required to publish financialstatements, but privately held companies are generally not requiredto do so.true or false

Hurricane Inc. purchased a portfolio of available-for-sale securities in 2016, its first year of operations. The cost and fair value of this portfolio on December 31, 2016, was as follows:

1	Name	Number of Shares	Total Cost	Total Fair Value
2	Tornado Inc.	830.00	$14,857.00	$16,185.00
3	Tsunami Corp.	1,230.00	31,488.00	34,809.00
4	Typhoon Corp.	2,170.00	44,268.00	43,834.00
5	Total		$90,613.00	$94,828.00

On June 12, 2017, Hurricane purchased 1,400 shares of Rogue Wave Inc. at $50 per share plus a $80 brokerage commission.

Required:

Provide the journal entries to record the following (refer to the Chart of Accounts for exact wording of account titles and be sure to enter the year as part of the date):

1.	The adjustment of the available-for-sale security portfolio to fair value on December 31, 2016.
2.	The June 12, 2017, purchase of Rogue Wave Inc. stock.

How are unrealized gains and losses treated differently for available-for-sale securities than for trading securities?

Chart of Accounts

CHART OF ACCOUNTS

Hurricane Inc.

General Ledger

	ASSETS
110	Cash
111	Petty Cash
120	Accounts Receivable
121	Allowance for Doubtful Accounts
131	Notes Receivable
132	Interest Receivable
141	Merchandise Inventory
145	Office Supplies
146	Store Supplies
151	Prepaid Insurance
161	Investments-Rogue Wave Inc. Stock
165	Valuation Allowance for Trading Investments
166	Valuation Allowance for Available-for-Sale Investments
181	Land
191	Store Equipment
192	Accumulated Depreciation-Store Equipment
193	Office Equipment
194	Accumulated Depreciation-Office Equipment

	LIABILITIES
210	Accounts Payable
221	Notes Payable
231	Interest Payable
241	Salaries Payable
251	Sales Tax Payable

	EQUITY
311	Common Stock
312	Paid-In Capital in Excess of Par-Common Stock
321	Preferred Stock
322	Paid-In Capital in Excess of Par-Preferred Stock
331	Treasury Stock
332	Paid-In Capital from Sale of Treasury Stock
340	Retained Earnings
350	Unrealized Gain (Loss) on Available-for-Sale Investments
351	Cash Dividends
352	Stock Dividends
390	Income Summary

	REVENUE
410	Sales
611	Interest Revenue
612	Dividend Revenue
621	Income of Rogue Wave Inc.
631	Gain on Sale of Investments
641	Unrealized Gain on Trading Investments

	EXPENSES
511	Cost of Merchandise Sold
512	Bad Debt Expense
515	Credit Card Expense
516	Cash Short and Over
520	Salaries Expense
531	Advertising Expense
532	Delivery Expense
533	Repairs Expense
534	Selling Expenses
535	Rent Expense
536	Insurance Expense
537	Office Supplies Expense
538	Store Supplies Expense
561	Depreciation Expense-Store Equipment
562	Depreciation Expense-Office Equipment
590	Miscellaneous Expense
710	Interest Expense
721	Loss of Rogue Wave Inc.
731	Loss on Sale of Investments
741	Unrealized Loss on Trading Investments

Journal

Shaded cells have feedback.

A. Provide the journal entries. Refer to the Chart of Accounts for exact wording of account titles. Be sure to enter the year as part of the date.

How does grading work?

PAGE 10

JOURNAL

Score: 33/51

	DATE	DESCRIPTION
1	?	?
2		?
3	?	?
4		?

Points:

6.47 / 10

Feedback

Check My Work

1. The gain or loss is the difference between the portfolio cost and its fair value. The offset account for the gain or loss entry is the valuation allowance account.

2. Increase the investment and decrease Cash for the purchase price (Shares x Per share amount) plus brokerage fee.

Final Question

Shaded cells have feedback.

B. How are unrealized gains and losses treated differently for available-for-sale securities than for trading securities?

Unrealized gains and losses for available-for-sale securities are accumulated over time and reported as a credit (positive) or debit (negative) balance in the Stockholdersâ Equity section. As a result, the changes in fair valueare not reflected on the income statement, as is the case with trading securities. Bypassing the income statement issupported on the grounds that available-for-sale securities will be held for alonger time than trading securities; thus, fluctuations in market prices havea greater opportunity to âcancel outâ over time.

Points:

5 / 5

Problems: For partial credit, work must be shown in an orderlyfashion. Answers will be graded based on their ability tocommunicate the problem solvingprocess. 30 points

Required: Prepare a multiple-step income statement in good form.

Calculate retained earnings as of December 31.

Prepare a classified balance sheet ingood form.

Calculate the providedratios 20 points

Additional Information:

Assume that all taxes are at 30% unless otherwise indicated. Theincome tax expense on continuing operations and the income taxliability have not yet been recorded.

Line Item 1 refers to a loss of $70,000 on uninsured damagedfrom a meteor that crashed into a plant facility in New Mexico. Themeteor is considered BOTH UNUSUAL AND INFREQUENT. The applicabletax rate was 35%.

Line Item 2 is income from the publishing division of the firmprior to May 1, 2016. On May 1, management decided to spin-off[discontinue] the operations.

Line Item 3 is also related to the publishing division mentionedin âcâ above. Actual losses on the divisions operations after May 1totaled $50,000. Management further expected additional losses of$30,000 on operations and a loss of $220,000 on the sale of thedivisionâs assets.

Line Item 4 arose from the sale of long-term investments. Theportfolio that originally cost $250,000 was sold for $284,000.

Line Item 5 arose from discovery of equipment, costing $600,000that had been written off in 2014 as an operating expense. As ofthe beginning of the 2016 the accumulated depreciation was$100,000. The book value of the equipment was $500,000.

Line Item 6 refers to restructuring costs.

Line Item 7 refers to inventory that was on Hand on December 31,and was discovered to be obsolete during the year-end count onJanuary 15, 2017.

The investment account represents two portfolios. The firstportfolio cost $200,000 and is worth $215,000. These stocks andbonds are available currently for sale to raise cash resources. Theother investment, costing $1,000,000 and worth $1,000,000, will beheld indefinitely [long-term] by management.

Included in goodwill is an amount equal to $100,000 thatmanagement âcreatedâ after a successful advertising campaign. Theoffsetting credit was to paid-in capital in excess of par value:common.

During 2016, management decided that the usefulness of thefranchise would only last four of the remaining five years.Consequently, management increased the amortization by $100,000 or25 percent in 2016. The new estimate was used in 2016 and would becontinued for the remaining three years.

Inventory on December 31, 2016 was $200,000 after consideringthe decline from line item 7.

The state authorized 100,000 shares of 8 % preferred stock witha par value of $100 of which 8,000 shares have been issued.

The state also authorized 2,000,000 shares of common stock, witha par value of $10 par value. There are no shares in treasury.

The bonds will be refinanced when they are due in 2017.

Foreign currency translation losses were $ 3,000.

Thornhill Company
Trial Balance
as of December 31, 2016

Account Title	Debit	Credit
8 %, Preferred Stock	$ -	$ 1,000,000.00
Accounts Payable		120,000
Accounts Receivable	300,000
Accumulated Depreciation: building		970,000
Accumulated Depreciation: equipment		3,550,000
Administrative Expenses	400,000
Bond Payable		4,000,000
Building	2,000,000
Cash	100,000	$ -
Common Stock (200,000 shares outstanding)		5,550,000
Discount on Bonds Payable	125,000
Dividends	300,000
Equipment	5,000,000
Franchise	340,000
Freight-in	15,000
Goodwill	785,000
Income Taxes Expenses	88,200
Income taxes Payable		88,200
Interest Expense	700,000
Inventory	170,000
Investments	1,200,000
Land	800,000
Long-term Notes Payable		2,500,000
Net Sales		5,300,000
Paid-in Capital in excess of par value: common		300,000
Plant Facilities under Construction	8,000,000
Prepaid Expenses	60,000
Purchase Discounts		65,000
Purchase Returns and Allowances		125,000
Purchases	2,575,000
Retained Earnings		747,500
Selling Expenses	650,000
Item 1 (net of taxes of $24,500)	45,500
Item 2 (net of taxes of $6,000)		14,000
Item 3 (net of taxes of $90,000)	210,000
Item 4		34,000
Item 5 (net of taxes of $150,000)		350,000
Item 6	840,000
Item 7	10,000

Total	$ 24,713,700	$ 24,713,700

Financial Ratios

Current Ratio = Current Assets /Current Liabilities.

Quick Ratio = (Cash + MarketableSecurities + Receivables) / Current Liabilities.

Working Capital = Current Assets -Current Liabilities.

Total debt to total assets = Total Liabilities / TotalAssets.

Gross Profit Rate = Gross Profit/ Net Sales

Netincome as a percentage of sales = Net Income / Net Sales

Return on assets= Operating Income

[Beginning Total Assets + Ending Total Assets]/2

Assume that beginning assets were $13,720,000

Return on stockholdersâ equity=

Net Income

[BeginningTotal Stockholdersâ Equity + Ending Total StockholdersâEquity]/2

Assume that beginning stockholdersâequity was $7,947,500

Price-Earnings Ratio = MarketPrice per Commons Share

Earnings per Common Share

Assume a market price of $ 1.00

Accounts Receivable Turnover = NetSales

Assume that beginning accounts receivable were $ 300,000

Average Collection Period = 365 days/ Accounts Receivable Turnover Ratio

Inventory Turnover = Cost of Goods Sold

Average Sales Period = 365 days /Inventory Turnover Ratio

Operating Cycle = The AverageCollection Period + The Average Sales Period.

i need you to prepare a completeclassified balance sheet based on the trial balance and theadditional information. Next, I need you to prepare a multi-stepincome statement based on the same information. Then, calculate thefinancial ratios provided.

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ACC* - Accounting ACC* M115 Lecture Notes - Lecture 7: Alan Bond, No Entry, Retained Earnings

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