Chapter 15

EXERCISE 15-18 (3035 minutes)

(a) 1. Dividends PayablePreference 16,000

(2,000 X $8) ......................................................................................................................
Dividends PayableOrdinary
(20,000 X $2).....................................................................................................................
40,000
Cash ....................................................................................................................... 56,000

2. Treasury Shares .................................................................................................................

108,000
Cash (2,700 X $40) ............................................................................................... 108,000

3. Land ....................................................................................................................................
30,000
Treasury Shares (700 X $40) ............................................................................... 28,000
Share PremiumTreasury ................................................................................. 2,000

4. Cash (500 X $105) ..............................................................................................................

52,500
Share CapitalPreference
(500 X $100) ....................................................................................................... 50,000
Share PremiumPreference .............................................................................. 2,500

5. Retained Earnings (1,800* X $45) .................................................................................... 81,000

Ordinary Share Dividend Distributable
(1,800 X $5) ........................................................................................................ 9,000
Share PremiumOrdinary ................................................................................ 72,000
*(20,000 2,700 + 700 = 18,000; 18,000 X 10%)

6. Ordinary Share Dividend Distributable ..........................................................................

9,000
Share CapitalOrdinary .................................................................................... 9,000

7. Retained Earnings .............................................................................................................

59,600
Dividends PayablePreference
(2,500 X $8) ........................................................................................................ 20,000
Dividends PayableOrdinary
(19,800* X $2) .................................................................................................... 39,600
*(18,000 + 1,800)
(b)
ELIZABETH COMPANY

Partial Statement of Financial Position

December 31, 2011
Equity
Share capitalpreference shares,
8%, $100 par, 10,000 shares
authorized, 2,500 shares issued and
outstanding ........................................................................................................... $250,000

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 Share capitalordinary stock,
$5 par, 100,000 shares

authorized, 21,800 shares issued, 19,800

shares outstanding................................................................................................ 109,000 $ 359,000
Share premium ........................................................................................................ 201,500
Retained earnings .................................................................................................... 639,400
Treasury shares (2,000 ordinary shares) .......................................................................... (80,000)
Total equity ............................................................................................................ $1,119,900

Computations:
Preference shares $200,000 + $50,000 = $250,000
Ordinary shares $100,000 + $ 9,000 = $109,000
Share premium: $125,000 + $2,000 + $2,500 + $72,000 = $201,500

Retained earnings: $450,000 $81,000 $59,600 + $330,000 = $639,400

Treasury shares $108,000 $28,000 = $80,000

Chapter 16

BRIEF EXERCISE 16-2

Share PremiumConversion Equity ............................................................ 20,000

Bonds Payable ............................................................................................. 1,950,000
Share CapitalOrdinary (2,000 X 50 X 10) .............................................. 1,000,000
Share PremiumOrdinary ........................................................................... 970,000

EXERCISE 16-2 (1520 minutes)

(a) Carrying Value of Bonds, 1-1-11

(from Ex. 161(a)) ......................................................................................................... 1,896,912
Discount Amortized in 2011
[(1,896,912 X .08) 120,000)] ..................................................................................... 31,753
Carrying Value of Bonds, 1-1-12 .................................................................................... 1,928,665

(b) Share PremiumConversion Equity...................................... 103,088

Bonds Payable ........................................................................ 1,928,665
Share CapitalOrdinary ........................................................... 500,000
Share PremiumOrdinary ........................................................ 1,531,753*

*103,088 + 1,928,665 500,000

(c) Share PremiumConversion Equity...................................... 40,000*

Bonds Payable ........................................................................ 1,928,665
Cash .............................................................................................. 1,940,000
Gain on Repurchase .................................................................... 28,665**

* 1,940,000 1,900,000 (Fair value of convertible bond issue (both liability and equity components less the fair value of the
liability component). The remaining balance in this account could be transferred to Share PremiumOrdinary.

** 1,928,665 1,900,000 (Angela has a gain because the repurchase amounts of the liability component is less than the
carrying value of the liability component.)

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EXERCISE 16-24 (1520 minutes)

(a) 1. Number of shares for basic earnings per share.

Dates Shares Fraction Weighted

Outstanding Outstanding of Year Shares

Jan. 1April 1 800,000 3/12 200,000

April 1Dec. 1 1,400,000 9/12 1,050,000
Weighted-average number of shares outstanding 1,250,000

OR

Number of shares for basic earnings per share:

Initial issue of shares ..................................................................................... 800,000 shares
April 1, 2011 issue (3/4 X 600,000) ............................................................... 450,000 shares
Total ................................................................................................... 1,250,000 shares

2. Number of shares for diluted earnings per share:

Dates Shares Fraction Weighted

Outstanding Outstanding of Year Shares

Jan. 1April 1 800,000 3/12 200,000

April 1July 1 1,400,000 3/12 350,000
July 1Dec. 31 1,424,000* 6/12 712,000
Weighted-average number of shares outstanding 1,262,000

*1,400,000 + [(600,000 1,000) X 40]

(b) 1. Earnings for basic earnings per share:

After-tax net income ........................................................................... 1,540,000

2. Earnings for diluted earnings per share:

After-tax net income ........................................................................... 1,540,000
Add back interest on convertible
bonds (net of tax):
Interest ................................................................................................. 30,000
Less income taxes (40%) ..................................................................... 12,000 18,000
Total ..................................................................................................... 1,558,000
[Note to instructor: In this problem, the earnings per share computed for basic earnings per share is 1.23 (1,540,000
1,250,000) and the diluted earnings per share is 1.23. As a result, only one earnings per share number would be presented.]

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Chapter 17

EXERCISE 17-4 (1015 minutes)

(a) Schedule of Interest Revenue and Bond Discount Amortization

9% Bond Purchased to Yield 12%
Bond Discount
Date Cash Received Interest Revenue Amortization Carrying Amount of Bonds
1/1/10 $278,384.00
12/31/10 $27,000 $33,406.08* $6,406.08 284,790.08
12/31/11 27,000 34,174.81 7,174.81 291,964.89
12/31/12 27,000 35,035.11** 8,035.11 300,000.00

**$278,384 X .12 = $33,406.08

**Rounded by $.68.

(b) December 31, 2011

Cash ............................................................................................... 27,000.00

Debt Investments.............................................................................................. 7,174.81
Interest Revenue................................................................................... 34,174.81

EXERCISE 17-10 (510 minutes)

The unrealized gains and losses resulting from changes in the fair value of equity investments [classified as non-trading] are
recorded in an unrealized holding gain or loss account that is reported as other comprehensive income and as a separate
component of equity until realized. Therefore, the following adjusting entry should be made at the year-end:

Unrealized Holding Gain or LossEquity ................................................................................ 6,000

Securities Fair Value Adjustment .................................................................................. 6,000

Unrealized Holding Gain or LossEquity is reported as other comprehensive income and as a separate component in equity and not
included in net income. The Securities Fair Value Adjustment account is a valuation account to the related investment account.

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Chapter 18

PROBLEM 18-2

(a) 2010 2011 2012

Contract price 900,000 900,000 900,000
Less estimated cost:
Costs to date 270,000 450,000 610,000
Estimated cost to complete 330,000 150,000
Estimated total cost 600,000 600,000 610,000
Estimated total gross profit 300,000 300,000 290,000

Gross profit recognized in

270,000
2010: X 300,000 = 135,000
600,000

450,000
2011: X 300,000 = 225,000
600,000

Less 2010 recognized gross profit

135,000
Gross profit in 2011 90,000

2012: Less 20102011 recognized gross profit

225,000
Gross profit in 2012 65,000

(b) In 2010 and 2011, no gross profit would be recognized.

Total billings ........................................................................ 900,000

Total cost.............................................................................. 610,000
Gross profit recognized in 2012 ......................................... 290,000

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Chapter 21

PROBLEM 21-1

(a) This is a finance lease to Jensen since the lease term is greater than 75% of the economic life of the leased asset. The
lease term is 78% (7 9) of the assets economic life.

This is a finance lease to Glaus because the lease term is greater than 75% of the assets economic life. Since the fair
value ($700,000) of the equipment exceeds the lessors cost ($525,000), the lease is a sales-type lease.

(b) Calculation of annual rental payment:

$700,000 ($100,000 X .51316)* = $121,130

5.35526**

**Present value of $1 at 10% for 7 periods.

**Present value of an annuity due at 10% for 7 periods.

(c) Computation of present value of minimum lease payments:

PV of annual payments: $121,130 X 5.23054** =
$633,575
PV of guaranteed residual value:$100,000 X .48166** =
48,166

$681,741
**Present value of an annuity due at 11% for 7 periods.
**Present value of $1 at 11% for 7 periods.

(d)jurnal Entri
1/1/10 Leased Machinery Under Finance
Leases..................................................................................... 681,741
Lease Liability ............................................................. 681,741

Lease Liability......................................................................... 121,130

Cash ............................................................................. 121,130

12/31/10 Depreciation Expense................................... 83,106

83,106
Accumulated Depreciation
($681,741 $100,000) 7 ................................................... 83,106

Interest Expense ..................................................................... 61,667

Interest Payable
($681,741 $121,130) X .11 .................................... 61,667

1/1/11 Lease Liability .......................................................................... 59,463

Interest Payable .......................................................................... 61,667
Cash ...................................................................................... 121,130

12/31/11 Depreciation Expense ............................................................. 83,106

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 Accumulated Depreciation ......................................... 83,106

Interest Expense ..................................................................... 55,126

Interest Payable .......................................................... 55,126
[($681,741 $121,130 $59,463) X .11]

(e) jurnal e ntry

1/1/10 Lease Receivable ..................................................................... 700,000
Cost of Goods Sold.................................................................. 525,000
Sales ............................................................................. 700,000
Inventory ..................................................................... 525,000

Cash ..........................................................................121,130
Lease Receivable ......................................................... 121,130

12/31/10 Interest Receivable ................................................................. 57,887

Interest Revenue
[($700,000 $121,130) X .10] ................................. 57,887

1/1/11 Cash ..........................................................................121,130

Lease Receivable ......................................................... 63,243
Interest Receivable ..................................................... 57,887

12/31/11 Interest Receivable .................................................................. 51,563

Interest Revenue .......................................................... 51,563
[($700,000 $121,130 $63,243) X .10]

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Chapter 22

EXERCISE 22-3 (2530 minutes)

(a) RAMIREZ CO.

Income Statement
For the Year Ended December 31

Average Cost
2008 2009 2010
Sales $4,000 $4,000 $4,000
Cost of goods sold .......................................................................... 800 1,000 1,130
Operating expenses ....................................................................... 1,000 1,000 1,000
Net income ........................................................................... $2,200 $2,000 $1,870

Income Statement
For the Year Ended December 31

FIFO
2008 2009 2010
Sales $4,000 $4,000 $4,000
Cost of goods sold .......................................................................... 820 940 1,100
Operating expenses ....................................................................... 1,000 1,000 1,000
Net income ........................................................................... $2,180 $2,060 $1,900

(b) RAMIREZ CO.

Income Statement
For the Year Ended December 31

2010 2009
As adjusted (Note A)
Sales $4,000 $4,000
Cost of goods sold .......................................................................... 1,100 940
Operating expenses ....................................................................... 1,000 1,000
Net income ........................................................................... $1,900 $2,060

(c) Note A:

Change in Method of Accounting for Inventory Valuation

On January 1, 2010, Ramirez elected to change its method of valuing its inventory to the FIFO method, whereas in all
prior years inventory was valued using the Average Cost method. The new method of accounting for inventory was
adopted because it better reflects the current cost of the inventory on the statement of financial position and
comparative financial statements of prior years have been adjusted to apply the new method retrospectively. The following
financial statement line items for fiscal years 2010 and 2009 were affected by the change in accounting policy.

2010 2009
Statement of Financial Position

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 Average FIFO Difference Average FIFO Difference
Inventory $ 320 $ 390 $70 $ 200 $ 240 $40
Retained Earnings 6,070 6,140 70 4,200 4,240 40

Income Statement

Cost of Goods Sold $1,130 $1,100 $30 $1,000 $ 940 $60

Net Income 1,870 1,900 30 2,000 2,060 60

Statement of Cash Flows

(no effect)

(d) Retained earnings statements after retrospective application.

2010 2009
Retained earnings, January 1, as reported $2,200
Less: Adjustment for cumulative effect
of applying new accounting
method (FIFO) 20
Retained earnings, January 1, as adjusted $4,240 2,180
Net Income 1,900 2,060
Retained earnings, December 31 $6,140 $4,240

EXERCISE 22-12 (2025 minutes)

(a) jurnal entry

Cost of plant assets $2,400,000
Less: Depreciation prior to 2010
2007 ($2,400,000 X .25) $600,000
2008 ($1,800,000 X .25) 450,000
2009 ($1,350,000 X .25) 337,500 1,387,500
Book value at January 1, 2010 $1,012,500

2010 Depreciation: ($1,012,500 $100,000) 5 = $182,500

Depreciation Expense .......................................................................................... 182,500
Accumulated DepreciationPlant Assets ............................................. 182,500

2010 2009
(b) Income before depreciation expense $300,000 $370,000
Depreciation expense 182,500 337,500
Net income $117,500 $ 32,500
Chapter 23

EXERCISE 23-8 (2030 minutes)

Prepare scedule

Cash flows from operating activities

Net income $145,000
Adjustments to reconcile net income
to net cash provided by operating
activities:

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 Depreciation expense .............................................................................. $39,000
Gain on sale of investment
[($200 $165) X 100] ............................................................................. (3,500)
Decrease in accounts receivable ............................................................ 12,000
Income from equity method investment
($27,000 X .30) ....................................................................................... (8,100)
Dividends from equity investment
($2,000 X .30) ........................................................................................ 600 40,000
Net cash provided by operating activities ..................................................... $185,000

EXERCISE 23-13 (3040 minutes)

ANDREWS INC.
Statement of Cash Flows
For the Year Ended December 31, 2010

Cash flows from operating activities

Less: Cash received from customers ............................................................ 325,150a
Cash paid to suppliers .................................................................................... 151,000 b

Cash paid for operating expenses ................................................................. 82,000c

Cash paid for interest ..................................................................................... 11,400c
Cash paid for income taxes ............................................................................ 8,750d 253,150a
Net cash provided by operating activities..................................................... 72,000a

Cash flows from investing activities

Sale of equipment
[30,000 (30,000 X .7)] + 2,000 ................................................................. 11,000
Purchase of equipment
[154,000 (130,000 30,000)] .............................................................. (54,000)
Purchase of non-trading investments ........................................................... (17,000)
Net cash used by investing activities ............................................................. (60,000)

Cash flows from financing activities

Principal payment on short-term loan.......................................................... (2,000)
Principal payment on long-term loan ........................................................... (7,000)
Dividend payments ......................................................................................... (6,000)
Net cash used by financing activities ............................................................ (15,000)

Net decrease in cash ....................................................................................................... (3,000)

Cash, January 1, 2010 .................................................................................................... 9,000
Cash, December 31, 2010 ............................................................................................... 6,000

a
Sales 338,150
Increase in accounts receivable ..................................................................................... (13,000)
Cash received from customers ...................................................................................... 325,150

b
Cost of goods sold.......................................................................................................... 175,000
Increase in accounts payable ......................................................................................... (4,000)
Decrease in inventories .................................................................................................. (20,000)
Cash paid to suppliers .................................................................................................... 151,000

c
Operating expenses ......................................................................................................... 120,000

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Increase in prepaid rent ................................................................................................... 1,000
Depreciation expense
35,000 [25,000 (30,000 X .70)] ...................................................................... (31,000)
Amortization of copyright ............................................................................................... (4,000)
Increase in wages payable ............................................................................................... (4,000)
Cash paid for operating expenses ................................................................................... 82,000

d
Income tax expense ......................................................................................................... 6,750
Decrease in income taxes payable ................................................................................... 2,000
Cash paid for income taxes .............................................................................................. 8,750

PROBLEM 15-6
(a)
Treasury Shares (280 X $97) ...................................................................................... 27,160
Cash ................................................................................................................... 27,160
Retained Earnings ....................................................................................................... 90,400
Dividends Payable
[(4,800 280) X $20 = $90,400] ..................................................................... 90,400
Dividends Payable ....................................................................................................... 90,400
Cash ................................................................................................................... 90,400
Cash (280 X $102) ........................................................................................................ 28,560
Treasury Shares ............................................................................................... 27,160
Share PremiumTreasury (280 X $5) ............................................................. 1,400
Treasury Shares (500 X $105) ..................................................................................... 52,500
Cash ................................................................................................................... 52,500
Cash (350 X $96) .......................................................................................................... 33,600
Share PremiumTreasury ......................................................................................... 1,400
Retained Earnings........................................................................................................ 1,750
Treasury Shares (350 X $105) ......................................................................... 36,750

(b) WASHINGTON COMPANY

Partial Statement of Financial Position
December 31, 2011

Equity
Share capitalordinary, $100 par value,
authorized 8,000 shares; issued 4,800 shares,
4,650 shares outstanding...................................................................................... $480,000
Retained earnings (restricted in the
amount of $15,750 by the acquisition
of treasury shares)................................................................................................ 295,850*
Treasury shares (150 shares) ................................................................................. (15,750)**
Total equity ..................................................................................................... $760,100

*($294,000 $90,400 + $94,000 $1,750)

**($52,500 $36,750

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