Current liabitities and contingencies

ACBU 343s,Intermediate Accounting II’ Midterm exam

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Chapter 13: Current liabitities and contingencies

l. On November I,20I8,XYZ Corp signs a note with {e’9112,000, and receives $100,000 in cash. The — ]”r ‘

note is non-interest bearing. The proceeds are due in exactly one year, on october 31,2019. Show journal entry

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=*fi’ Show the journal entry for December 31. <2pts>

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What will XyZ report as the carryingvalue of the note on its December 31, 2018 balance sheet? <lpt>

for November 1. <2Pts>

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w 2.X11ZCorp performs consulting services for Client Allison, charges $10,000. There is an 119lo applicable sales

tax to these services. XYZ immediately collects the fuIl amount due. Show journal entry- <2pts>

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3.XyZCorp sells coffee machines with a 1 year warranty. In 2018, XYZ has $300,000 of sales- From prior

years, experience ,xyz estimates that it will inc’rr warranty expenses of 7Yo of sales. Show the journal entry for warranties made for the 2018 year. <2pts>

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4. Op-January l, 2018, YtZ Corppurchases a coal mine, which requires environmental clean-up at the end of its (0 har usenil life. The purchase price is $50,000,000, paid immediately in cash. The clean-up is estimated to

“N$ t 2,000,000. XyZias a cost of capital of lTYo. (Present value charts are provided on the last page.)

Show the journal entry for the Burchase. <4pts>

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Show any adjusting entries made atlbe pnd-of-t-[e_y_”ea;.-qn Drccpmbp-r.-3*1*291-8. (Ignore depreciation/depletion.) <2pts>

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What amount will XyZ report on its December 31,2018 balance sheet for its asset retirement obligation? <2pts>

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Chapter 14: Long-term liabilities

semi-annually. The bond matures in 5 years. ABC has a market interest rate of 10%. Show the joumal entry for this sale. (Present value charts are provided on the last page.) <3pts>

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Assume same info as above, except instead of receiving cash, ABC receives a unique asset (machine) with

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V unknown fair value. Show the journal entry. <lpt>

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payment made on Decpmber 31,2018. Reminder: Usp tne eqffiivl interest *amtt(3pGt

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ll0*w* Let’s go back to the original problem of receiving cash. ShowJbe-ieu,malenlg1.1pr second semiannual interest

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What is the carrying value of the bond that ABC will report on its December 31,2018 ba!a1g9 sheet? <lp,J?

-. ‘-r 0-a ^4 ! L’J u(uo’$orflS3rlz 3; l.r 7 ? -lr rate l2o/o, paid semi-annualiy, bond matures in 5 years)-except the bond was soid on Februarlt I , 2018. (Interest payments will still made on June 30 and December 31.) Show the journal entry made on February 1.

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What is total interest expense for thb 6 month period.tiaihg June 30, 2018? <2pts>

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7.XYZ Corp issued a bond a few years ago. It has aface value of $100,000 and a current balance in the bond discount of $4,800. Though the bond will mature in 3 years, XYZ decides to retire/extinguish the bond early. When retiring, the bond was trading at a price of 98.2. Show the journal entry for this retirement. <2pts>

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Chapter 15: Stockholders’ equity i’i 8. JKLM Corp sells 40,000 shares of commoi-st66k (with $1 par value and $12 market value) and 1,000 shares of preferred stock (with no par value and $20 market value). It receives $500,000 in cash. Show the journal entry.<2pts>-

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Assume the same information, except JKLM receives $490,000. Show the journal entry assuming JKLM uses the proportional meth”d..Zil:ff, b4 Gmwrarr *-”* 42

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This time, assume the preferred stock does not have a known market value. Show the journal entry assuming JKLM receives $490,000, and uses the incremental method. <2pts>

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{‘{44{r.I th’I. 9. JKLM Corp repurchases journal entry. <2pts>

Tirnr-y gt- c,t 10,000 shares of its own common stock ($l par value, $12 market value). Show the

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JKLM later sells 4,000 shares of treasury stock at a price of $ 13 per share. Show the journai entry. <2pts>

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JKLM later sells the remaining 6,000 shares of treasury stock at a price “tS”b#iJn”*Tr” journalentry. <2pts> C^t tl-/ 6*tg’

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conversion. <2pt9^

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premium balance of $12,000. The bondholder decides to exercise her conversion rights by converting the entire bond for 8,000 shares of common stock (par value $ 1, market value $30). Show the joumal entry for this

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12. On October 1,2018, EFG Corp hires a new CEO and gives her stock options with the following characteristics: Gives CEO the right to purchase up to 200,000 shares of common stock ($1 par value) for $12lshare. Vesting period (and service period) is 2 years. The options expire in’8 years. At the grant date, the options have a value of $400,000 (based on Black Scholes pricing). Show the journal entry made on December 31’2018′ <2pts>

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Assume 7 more quarters pass, such that thealeqygsting period has been met. On October 2,2020, the CEO fully exercises all of her options. The stock fice at time of exercise is $20. Show the journal entry. <2pts>

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1 1. EFG Corp sells a bond with face value $ 100,000, with a detachable warrant that gives the right of the bondholder to buy up to 1,000 shares of $1 par value common stock for $15 per share within the next 5 years. The bond’s price is 98.2, and the value of the detap-_hable W_aU:ant,ip $3,000. EFG sells the combined bond*warrant for a total of $100,000 cash. Show the journal entry, assuming EFG uses the ploportional .iT.,j./, method’ <2Pts>, , ./ 116[+ r ,J l},o. ,l TT’]

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13. On October 1, 2018, EFG Corp also hires a new CFO. The CFO is granted 20,000 shares of restricted stock when its common stock ($1 par value) is trading at $12lshare. The vesting period is also 2years. Show the

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k(t t How much is the change in total stockholders’ equity at this October I grant

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Show adjusting entries made at 1,2018. <2pts>

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– 0,r On January L,2019, after only 3 months on the job, the CFO quits. Show any journal entries related to the

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journal entry on October l. <2p[s>

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restricted stock. <2pts>

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Chapter 16: Earnings per share

14. QRST Corp has net income of SqOO,b-0O. QilSt hu, 100,000 shares of cumulative preferred stock outstanding, of which it has declared (but not yet paid) a $0.20lshare dividend. QRST began the year with 2,000,000 common shares outstanding. On June 30, it issued 100,000 additional shares. On November 1, it repurchased 90,000 shares. Calculate QRST’s basic EPS. Round to 3 digits ($0.000). Show work for both

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numerator and denominator. <3pts>

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15. ABC Corp has net income of $1,000,000. No preferred stock. Weighted average of common shares outstanding during the year was 2,000,000 shares. ABC also has convertible bonds outstanding during the entire year, with the following characteristics: Face value of $100,000, and coupon rate of 6%, which is also the market rate. (The bond was sold in a prior year for a 100.0 price.) Convertible into 100,000 shares of common stock. ABC’s tax rate is 30o/o. What is ABC’s diluted EPS?. ABC’s taxratl is 30%. What is ABC’s diluted EPS? Round to 3 digits ($0.000). <3pts>

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I 6. EFG Corp has net income of $ 1,300,000. No preferred stock. Weighted average common shares outstanding during the year was 2,200,000 shares. No convertible bonds outstanding. However, EFG has stock options and warrants outstanding, and would translate into an additional 3–00,000 shares of common stock. (Note: 100,000 shares have vested and are exercisable, while 200,000 shares have not vested yet.) The average exercise price of these options/warrants is $2Olshare, while the average market price during the year was $24. Using the treasury stock method, what is EFG’s diluted EPS? Round to 3 digits ($0.000). <3pts>

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Chapter 1″9: Accounting for income taxes

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17. On January 1, 2018, QRST Corp purchases a ine for $200,000. The machine has a 10 year useful life and a $0 salvage value. QRST uses straight line depreciation for financial reporting purposes, and uses double declining balance for tax purposes. ORST’s revenues for the vear are $500,000!No expenses except depreciation expense. Their income tax ratels :oz.3H6w tfi5frumai entry roltr.ooFtaxes made on December 31, 2018. <2pts>

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-l’ On January 15 of 2019, QRST pays taxes due from the 2018 year. Show the journal entry. <lpt>

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I 8. On October l, 2018, AMZN receives $ 120,000 in cash for uneamed subscription revenue related to Prime membership, which is earned evenly over the next 12 months. This entire cash receipt is considered a revenue for tax purposes. AMZN has no other activity during the year, and has no expenses. Income taxrate is 30%. Show the journal entry for income taxes made on December 31,2018. <2pts>

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On January 1 , 2019 , AMZN realizes that there rs a 53o/o chance that it will.$”o! hq ?b!gjg_-e9rorJ20,000 of the prior year’s unearned subscription revenue. AMZN immediately sets up a valuation account. Show the joumal entry to do this. <2pts>

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What is the net deferred tax account and amount that it would report on its balance sheet after this journal entry? (on, say, January 2) <Ip>

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19. UVW Corp begins operations in 2018 and reports income before income taxes of -$390,000 (a loss). Its tax rate is 30%. Show the tax journal eW for the year. <2pts>

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What is UVW’s net income/loss that it reports on its 2018 income statement? <lpt>

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ln20l9, UVW reports income before income taxes of $210,000. Show the tax journal entry. <2pts>

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D.l 1n2020, WW reports income before income taxes of $330,000. Show the tax joumal entry.<2pts>

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Multiple choice questions <2pts each> ( _ 6 ,

) tr*MC1:Whichofthefollowingcontingenc”M”losedinthefinancialstatementsorthere1ated 1l frotes?’,/ a. Risk of damage of enterprise property by explosion

b. Environmental liabilities that cannot be reasonably estimated c. Probable losses not reasonably estimable d. All of these need not be disclosed

lJ MC2: If a company chooses the fair value option, a decrease in the fair value of the liability is recorded by fdcrediting:

a. UnrealizedHoldingGain/Loss-Income. b. Realized Holding Gain. c. Bonds Payable. d. Gain on Restructurine of Debt.

.–. I MC3: On October 1,2017 Coronado Industries issued 60/o, L}-year bonds with a face value of $6100000 at 104.

erest is paid on October 1 and April 1, with any premiums or discounts amortized on a straight-line basis. Boid interest expense reported on the December 31 ,2017 income statement of Coronado Industries would be:

A{/ # -Y’v’ f:&fC4: Direct costs incurred to sell

a reduction of additional an expense of the period an intangible asset.

I

2

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