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Intermediate Accounting 1 Exam
(3 Hours)
QUESTION ONE
MBC Corporation has two classes of capital stock: 6% , $10 par preferred (Authorized 500,000 shares) and $20 par common (Authorized 600,000 shares). On December 31st, 1995 the following accounts were included in stockholders’ equity:
Preferred Stock $ 3,000,000
Common Stock 8,000,000
Paid-in Capital in Excess of par- Preferred 200,000
Paid-in Capital in Excess of par- Common 2,000,00
Retained Earnings (300,000)
The following transactions occurred during 1996:
- 30,000 shares of preferred stock issued at $15 per share.
- 20,000 shares of common stock issued at $23 per share.
- 10,000 common shares of MBC purchased at $12 per share.
- 4,000 shares of treasury stock reissued at $10 per share.
- 1,000 common shares issued in exchange of a patent. An independent consultant values the patent at $29,200 while the patent fair market value is $27,500.
- 2-for-1 common stock split.
Required:
1. Record the transactions listed above.
2. Prepare stockholders’ equity section in the MBC Corporation balance sheet at 12/31/1996.
QUESTION TWO
The stockholders’ equity section of ABC Corporation balance sheet on January 1st, 1996 is as follows:
Common stock, par $100, 20000 shares authorized $1,200,000
Paid-in capital in excess of par 120,000
Unappropriated retained earnings 400,000
Appropriated retained earnings for fixed assets price increase 360,000
Cost of treasury stock (800 shares) (112000)
The following transactions occurred during year 1996:
1) Paid cash dividends of $1.30 per share on the common stock.
2) Declared 15% stock dividend when the share was selling at $150 in the market.
3) Made a prior period adjustment to correct understatement of $40,000 in accounts payable.
4) Sold 50% of treasury shares for $64,000.
5) Issued the certificate for stock dividend.
6) The board of directors appropriated $50,000 for fixed assets price increase.
7) The board of directors declared a cash dividend of $1.50 per on the common stock.
8) Reported net income of $780,000 for the year.
Required:
(1) Prepare journal entries for the above transactions.
(2) Prepare retained earnings statement for year 1996.
QUESTION THREE
a) On January 1st, 1990 PANDA corporation issued at 97 bonds par $900,000 - 8% (to be paid semiannually) due in 10 years. Bond issue cost was $12,000. On January 1st,1996 the entire issue is called at 102.
Required:
- Record bond issuance, and interest for year 1990 showing its effect on income statement and balance sheet at the end of this year.
- Record bonds redemption (extinguishment).
b) In need to allow for expansion in the rapidly growing INTERNET satellite communication services, CNE Corporation has decided to raise additional capital through a subscription basis. The stock is a $20 par value and 50,000 shares are offered at $30. The terms of subscription are 40% down and the balance at the end of six months. All shares are subscribed and the second installment are received except subscribers of 2000 shares. Shares of defaulted subscribers are sold for cash at $25 per share. CNE incurred $250 newspaper ads to sell these shares. The corporation refunded those subscribers for the amounts due.
Required: Prepare general journal entries for the above transactions.
QUESTION FOUR
On 1/1/1996 cash balance of CBS Corporation was $62,800. The following transactions occurred during 1996:
- Purchases of materials for $20,000 ($8,500 in cash).
- Sales of goods for $90,500 (40% on credit).
- Buildings were purchased through the issuance of $56,000 common stock at par.
- Depreciation expenses for the year was $12,000.
- An additional $20,800 in capital stock was issued at par.
- Dividends of $11,600 were declared , 50% of this amount are stock dividends and the rest is scrip dividends paid in cash.
- Purchased hold to maturity securities at $2,600 in cash.
Required: Prepare Cash Flows statement for the year 1996 as mandated by FASB- FAS (standard) Number 95. Include all supplementary disclosure(s) required by the standard.
QUESTION FIVE
CNN Corporation started its trading securities (AB, CD, EF, and GH securities) portfolio in 1995. Following are trading securities transactions occurred during 1995:
- Purchased 1,000 shares of AB common stock at $44,000 (par $42,000); Broker cost $200.
- Purchased 500 shares of CD common stock at $35,000 (par $34,500); Broker cost $100.
- Purchased 100 bonds 8% of EF at $45,000 (face value $43,000); Broker cost $350.
- Purchased 500 shares of GH common stock at $8,000 (par $7,600); Broker cost $150.
- Collected annual interest due on EF bonds.
- Sold 250 shares of GH common stock for $5000; broker cost $100.
- On 12/31st/1995 fair value (per share) of the portfolio securities were:
AB share $40 CD share $76
EF bond $470 GH share $10
Required:
(1) Record the transactions listed above.
(2) Show the effect of these transactions on CNN income statement for 1995 and balance sheet at 12/31/1995 as required by FASB- FAS (standard) Number 115.
