York University Financial Accounting Worksheet

Description

1 attachmentsSlide 1 of 1attachment_1attachment_1

Unformatted Attachment Preview

Exercise Questions
Question 7.1
Time Traveler Magazine completed the following transactions during 2016:
•
•
•
Oct 31: Sold one-year subscriptions, collecting cash of $1,750, plus HST of 13%.
Dec 31: Remitted (paid) HST to Canada Revenue Agency (CRA).
Dec 31: Made the necessary adjustment at year-end.
1. Journalize these transactions and then report any liability on the company’s balance sheet on
December 31st.
Question 7.2
During its first year of operations, Keene Limited had sales of $76,500. The company offers a 2-year
limited warranty on all sales and expects that warranty costs for the first year will average 0.5% of
sales with an additional 1.5% in the second year. During the current year, the company spent $1,200
on warranty repairs.
2. Prepare all journal entries related to the warranty for the current year.
3. How will the warranty liability be reported on the company’s year-end balance sheet?
Question 7.3
On January 31, 2016, Muscle Sports Cars issued 10-year, 4% bonds with a face value of $100,000. The
bonds were issued at 94 and pay interest on January 31 and June 30. Muscle amortizes their bonds by
the straight-line method.
4. Record: (a) the issuance of the bonds on January 31, (b) the semi-annual interest payment and
discount amortization on June 30, and (c) the interest accrual and discount amortization on
December 31.
Question 7.4
On June 30, 2016, the market interest rate was 7%. Starship Enterprises issues $500,000 of 8%, 20-year
bonds at 110.625. The bonds pay interest on June 30 and December 31. Starship amortizes bonds by
the effective-interest method.
5. Record issuance of the bonds on June 30, 2016, the payment of interest on December 31, 2016,
and the semi-annual interest payment on June 30, 2017.
Question 7.5
Alliance Agreement Corporation is considering two plans for raising $2,500,000 to expand its current
operations. The first plan involves the sale of $2,500,000, 8%, 10-year bonds sold at face value. The
second plan involves selling 50,000 common shares at $50 each. Alliance Agreement Corporation
currently has outstanding 200,000 shares of stock and a net income of $900,000. Either plan is
expected to generate an additional income of $400,000 before interest and taxes. The income tax rate
is 30%.
6. Calculate earnings per share for both plans.
Question 7.6
Loki Corporation earned a net income of $90,000 during the year ended December 31, 2016. On
December 15, Loki had declared the annual cash dividend on its $0.35 preferred shares (5,000 shares
issued for $80,000) and a $0.40 per share cash dividend on its common shares (20,000 shares issued
for $60,000). Loki then paid the dividends on January 4, 2017.
7. Journalize the following for Loki Corporation:
•
•
Declaring the cash dividends on December 15, 2016.
Paying the cash dividends on January 4, 2017.
8. Did Retained Earnings increase or decrease during 2016? If so, by how much?
Question 7.7
IMA Believer Corp’s balance sheet reported the following shareholders’ equity as of December 31,
2016:
Current assets
Current liabilities
Plant and equipment
Long-term liabilities
Common shareholders’ equity
Preferred shareholders’ equity
Beginning of the Year
$62,000
25,000
300,000
50,000
125,000
60,000
End of the Year
$82,000
55,000
350,000
75,000
225,000
85,000
Share Capital:
Preferred shares, $100 stated value; $5 cumulative, 10,000 shares authorized, 10,000 issued
Common shares 200,000 shares authorized, 50,000 shares issued
Total share capital
Retained earnings
Total shareholders’ equity
$1,000,000
1,500,000
$2,500,000
500,000
$3,000,000
9. Assuming there are 3 years’ dividends in arrears (including that of the current year), determine (1)
preferred equity and (2) book value per share of common shares.
Question 7.8
Settlers of Catan Co is authorized to issue an unlimited number of common shares and 10,000
preferred shares. During its first year, the business completed the following share issuance
transactions:
•
•
•
July 19: Issued 10,000 common shares for cash of $6.50 per share.
Oct 3: Issued 500, $1.50 preferred shares for $50,000 cash.
Oct 11: Received inventory valued at $11,000 and equipment with fair value of $8,500 for 3,300
common shares.
10. Journalize the transactions. Explanations are not required.
11. Prepare the shareholders’ equity section of Settlers of Catan Co’s balance sheet. The ending
balance of Retained Earnings is a deficit of $42,000.
Question 7.9
12. Given the following information for Victory Stables, calculate their return on assets and equity and
comment on the use of these ratios (why would we use them? what do they tell us?).
Net income
Interest expense
Income tax expense
Preferred dividends
Current assets
Current liabilities
Plant and equipment
Long-term liabilities
Common shareholders’ equity
Preferred shareholders’ equity
$50,000
8,500
15,250
2,500
Beginning of the Year
$62,000
25,000
300,000
50,000
125,000
60,000
End of the Year
$82,000
55,000
350,000
75,000
225,000
85,000
Question 7.10
Multigrain Health
Foods Inc. is
authorized to issue
5,000,000 common shares. In its initial public offering during 2010, Multigrain issued 500,000 common
shares for $7.00 per share. Over the next year, Multigrain’s share price increased and the company
issued 400,000 more shares at an average price of $8.50.
During the next seven years, from 2010 to 2016, Multigrain earned a net income of $920,000. They
declared and paid cash dividends of $140,000. A 10% stock dividend was distributed to the
shareholders in 2016 on the shares outstanding. The market price was $8.00 per share when the stock
dividend was distributed. On December 31, 2016, the company has total assets of $14,500,000 and
total liabilities of $6,820,000.
13. Show the computation of Multigrain’s total shareholders’ equity at December 31, 2016.
14. Present a detailed computation of each element of shareholder’s equity.

Purchase answer to see full
attachment

Explanation & Answer:
10 Pages

Tags:
business

accounting

finance

User generated content is uploaded by users for the purposes of learning and should be used following Studypool’s honor code & terms of service.