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                       Intermediate Accounting 2 Exam                    

(3 Hours)

QUESTION ONE 

    NBC Corporation was organized on January 1^st, 1997. It was authorized to issue 30,000 shares of 8%, $100 par value preferred stock, and 400,000 shares of common stock with $50 par value per share. The following transactions were completed during the first year:

-  20,000 shares of preferred stock issued at $120 per share.

-  100,000 shares of common stock issued at $60 per share.

-  5,000 common shares of NBC purchased at $80 per share.

- Issued 3,000 shares of common stock to AAA consultants in payment of their bill of  $160,000 for services rendered in helping the corporation to organize.

- 1,000 shares in treasury reissued at $85 per share.

- 4,000 common shares issued in exchange of building. The asking price of the building was $220,000; the fair market value of the building was $210,000.

- NBC Corporation has decided to raise additional capital through a subscription basis.  50,000 common stock shares are offered at $70 per share. The terms of subscription are 50% down payment and the balance at the end of three months.  All shares were subscribed and the second (last) installment was received except subscribers of 1000 shares.  Shares of defaulted subscribers were sold for cash at $80 per share.  NBC refunded those subscribers for the amounts due.

Required:

1. Record the transactions listed above.

2. Prepare NBC corporation balance sheet after recording the transactions listed above.

QUESTION TWO

    The stockholders’ equity section of CBS Corporation balance sheet on January 1^st, 1997 is as follows:

 Preferred stock, 7% par $70 - Call price $80; 20000 shares authorized:

                                                                                                                                      $700,000

  Common stock, par $80, 30000 shares authorized                                        1,120,00

  Paid-in capital in excess of par (common)                                                         140,000

  Unappropriated retained earnings                                                                       980,000

   Appropriated retained earnings for plant assets expansion                        280,000

   Cost of treasury stock  (1200 common shares)                                              (108,000)

                                                                                                                                        3,112,000

     The following transactions occurred during year 1997:

1)   Paid cash dividend of preferred stock and cash dividend of $1.10 per share on the common stock.

2)   Declared 10% common stock dividend when the share was selling at $100 in the market.

3)   Corrected last year overstatement of $10,000 in building accumulated depreciation.

4)   Results  of partial quasi-reorganization procedures:

5)   Sold 60% of CBS shares in treasury for $110 per share.

6)   Issued the certificates for stock dividend.

7)   The board of directors appropriated $15,000 for fixed assets price increase, and decided to reduce appropriated retained earnings for plant assets expansion to $200,000.

8)   Reported net loss of $1,780,000 for the year.                                                               

Required:

(1)  Prepare journal entries for the above transactions, and compute book value per share on January 1^st, 1997.

(2)  Prepare statement of retained earnings for year 1997.

QUESTION THREE

a) On April 1^st, 1996 ABC corporation issued at 98 bonds par $1,000,000 - 9% (to be paid semiannually 7/1 and 1/1) due in 5 years. Bond issue cost was $24,000.  ABC corporation uses straight line amortization method.  

Required: Record bond issuance, and interest for year 1996 showing their effects on income statement and balance sheet at the end of this year. 

b) On January 1^st, 1990 AAA corporation issued 10% (to be paid semiannually) - 20 years mortgage bonds in principle amount of $400,000 at 97. Bond issue cost was $20,000 and bonds can be called at any time for redemption at 105.  AAA uses straight line amortization.  

Required:  Record bonds redemption assuming that the entire issue is called on 12/31/1997. 

QUESTION FOUR

      ANSWER (A) OR (B):

(A)

   On 1/1/1997 ABC balance sheet is as follows:

               Assets:                                                       Liabilities and stockholders’ equity:

     Cash                                            $52,900         Short-term bank loans       $25,000

     Hold-to-maturity investments  30,000         Bonds payable                       80,000

     Trading securities                        40,000       Common stock ($10 par)   40,000

      Plant assets                                 50,000         Retained Earnings                27,900

                                                             172,900                                                          172,900

      The following transactions occurred during 1997:

-  Purchases of materials for $15,000 ($5,700 on credit).

-  Plant assets depreciation rate is 10% for the year.

-  Land was purchased through the issuance of  $122,000 in bonds.

-  Sales of goods for $110,500 (40% on credit).

- Cash interest expense of $9,000 was paid.

- Bonds payable in the amount of $40,000 were retired at par on cash.

- Purchased available for sale securities at $2,600 on cash.

- Cash interest revenue of $14,000 was received.

- Dividends of $15,800 were declared: 10% stock dividends at par and the rest is cash dividends paid in 1997.

-  Additional 6,000 shares of common stock were issued on cash at $20 per share. 

Required: Prepare Cash Flows statement for the year 1997 as mandated by FASB-FAS Number 95. Include supplementary disclosure required by the American standard.

(B)

     ZAS corporation had the following financial statements prepared as of December 31:  

                                          1997            1996                                             1997             1996     

Cash                                $60,000     $70,000    Acc payable       $135,000    $116,000

Accounts receivable    63,000         51,000    Notes payable    4,000              5,000

Inventories                      44,000         61,000    Ac Depreciation  37,000         25,000

Prepaid expenses           4,000            6,000    Bonds payable    62,000         73,000

Equipment                     154,000       120,700   stock ($10 par)   120,000        137,000

Buildings                          90,000         83,300     Retained earn.     57,000         36,000

                                           415,000       392,000                                   415,000       392,000

                Revenues                                                                               $353,100

                - Cost of goods sold                                     170,000

                - Operating expenses                                  130,000

                - Interest expense                                          9,100              (309,100)              

                - Income tax expense                                                             (7,000)

     Additional information:

1)                   Equipment and buildings acquired were purchased for cash.

2)                   Dividends in the amount of $16,000 were declared and paid in cash during 1997.

3)                   Interest expense was paid in cash.

4)                   Notes payable and bonds payable were redeemed at their book value for cash.

5)                   Common stock retired at par for cash. 

Required: Prepare Cash Flows statement for the year 1997.

    Following are American Airlines trading securities portfolio transactions occurred in cash during 1997:

- Purchased 1,200 shares of TWA common stock at $45,000 (par $42,000); Broker cost $300.

- Purchased 200 bonds 10% of KLM at $46,000 (face value $43,000, premium $2,000).

- Purchased 600 shares of SAS common stock at $36,000 (par $34,500); Broker cost $240.

- Purchased additional 400 shares of TWA common stock at $15,000; Broker cost $100.

- Collected annual dividend revenue of $2.50 per share on SAS common stock.

- Sold 200 shares of TWA common stock for $10,000; broker cost $100.

- On 12/31/1997 fair value (per share) of the portfolio securities were:

TWA share $42                   KLM bond $200                   SAS share $70

Required:

(1)  Record the transactions listed above.

(2) Show the effect of these transactions on American Airlines income statement for 1997 and balance sheet at 12/31/1997 as required by FASB- FAS (standard) Number 115.

(3) Assume that American Airlines has a fair value adjustment allowance of $2,000  (debit balance on 12/31/1996), what would be the portfolio valuation adjustment entry on 12/31/1997?.