Accounting test II – Tutorial guide

QUESTION #1

 

Samantha Adams and Greg Dwyer decide to form a partnership. Adams invests $15,000 cash and accounts receivable of $30,000 less allowance for doubtful accounts of $2,000. Dwyer contributes $20,000 cash and equipment having a $6,000 book value. It is agreed that the allowance account should be $3,000 and the fair market value of the equipment is $10,000.

 

QUESTION #2

 

High & Low Co. reports net income of $34,000. The partnership agreement provides for annual salaries of $24,000 for High and $15,000 for Low and interest allowances of $4,000 to High and $6,000 to Low. Any remaining income or loss is to be shared 40% by Hifh and 60% by Low

 

QUESTION #3

 

The Henderson and Perry Partnership has partner capital account balances as follows:

                  Henderson, Capital                                $550,000

                  Perry, Capital                                           250,000

 

The partners share income and losses in the ratio of 60% to Henderson and 40% to Perry.

 

Instructions

Prepare the journal entry on the books of the partnership to record the admission of Tyler as a new partner under the following three independent circumstances.

1.   Tyler pays $250,000 to Henderson and $150,000 to Perry for one-half of each of their ownership interest in a personal transaction.

2.   Tyler invests $850,000 in the partnership for a one-third interest in partnership capital.

 

3.         Tyler invests $175,000 in the partnership for a one-third interest in partnership capital

 

QUESTION #4

 

The XYZ Partnership is to be liquidated and you have been hired to prepare a Schedule of Cash Payments for the partnership. Partners X, Y, and Z share income and losses in the ratio of 4:3:3, respectively. Assume the following:

1.   The noncash assets were sold for $75,000.

2.   Liabilities were paid in full.

3.   The remaining cash was distributed to the partners. (If any partner has a capital deficiency, assume that the partner is unable to make up the capital deficiency.)

 

Instructions

Using the above information, complete the Schedule of Cash Payments below

 

QUESTION #5

 

The corporate charter of Highpoint Corporation allows the issuance of a maximum of 2,500,000 shares of $1 par value common stock. During its first three years of operation, Highpoint issued 1,500,000 shares at $15 per share. It later acquired 30,000 of these shares as treasury stock for $25 per share.

 

Instructions

Based on the above information, answer the following questions:

(a)    How many shares were authorized?

(b)    How many shares were issued?

(c)     How many shares are outstanding?

 

(d)    What is the balance of the Common Stock account?

 

(e)    What is the balance of the Treasury Stock account?

 

QUESTION #6

 

The following items were shown on the balance sheet of Henry Corporation on December 31, 2016:

                                                  

Stockholders’ Equity

      Paid-In Capital

            Capital Stock

                  Common stock, $5 par value, 360,000 shares

                  authorized; ______ shares issued and ______ outstanding………………..    $1,650,000

            Additional paid-in capital

                  In excess of par value…………………………………………………………………….        165,000

                        Total paid-in capital…………………………………………………………………..      1,815,000

 

      Retained Earnings…………………………………………………………………………………….         750,000

                  Total paid-in capital and retained earnings………………………………………..      2,565,000

      Less:  Treasury stock (15,000 shares)………………………………………………………..        (180,000)

                  Total stockholders’ equity……………………………………………………………….    $2,385,000

 

Instructions

Complete the following statements and show your computations.

(a)    The number of shares of common stock issued was _______________.

 

(b)    The number of shares of common stock outstanding was ____________.

(c)     The sales price of the common stock when issued was $____________.

(d)    The cost per share of the treasury stock was $_______________.

 

(e)    The average issue price of the common stock was $______________.

 

(f)      Assuming that 25% of the treasury stock is sold at $20 per share, the balance in the Treasury Stock account would be $_______________.

 

QUESTION #7

Gypsy Corporation is authorized to issue 1,000,000 shares of $5 par value common stock.  During 2016, its first year of operation, the company has the following stock transactions.

Jan.     1     Paid the state $4,000 for incorporation fees.

Jan.   15     Issued 500,000 shares of stock at $7 per share.

Jan.   30     Attorneys for the company accepted 500 shares of common stock as payment for legal services rendered in helping the company incorporate. The legal services are estimated to have a value of $7,000.

July     2     Issued 100,000 shares of stock for land.  The land had an asking price of $900,000. The stock is currently selling on a national exchange at $8 per share.

Sept.   5     Purchased 15,000 shares of common stock for the treasury at $10 per share.

Dec.    6     Sold 11,000 shares of the treasury stock at $11 per share.

 

Instructions

Journalize the transactions for Gypsy Corporation

 

QUESTION #8

The stockholders’ equity section of Evergreen Corporation at December 31, 2017, included the following:

         6% preferred stock, $100 par value, cumulative,

         10,000 shares authorized, 8,000 shares issued and outstanding…….       $   800,000

         Common stock, $10 par value, 250,000 shares authorized,

         200,000 shares issued and outstanding ………………………………………       $2,000,000

Dividends were not declared on the preferred stock in 2017 and are in arrears.

On September 15, 2018, the board of directors of Ellis Corporation declared dividends on the preferred stock for 2017 and 2018, to stockholders of record on October 1, 2018, payable on October 15, 2018.

 

On November 1, 2018, the board of directors declared a $.90 per share dividend on the common stock, payable November 30, 2018, to stockholders of record on November 15, 2018.

 

Instructions

Prepare the journal entries that should be made by Ellis Corporation on the dates indicated below:

                        September 15, 2018               November 1, 2018

                        October 1, 2018                      November 15, 2018

            October 15, 2018        November 30, 2018

 

QUESTION #9

 

Roland Corporation has 120,000 shares of $5 par value common stock outstanding. It declared a 15% stock dividend on June 1 when the market price per share was $12. The shares were issued on June 30.

Instructions

Prepare the necessary entries for the declaration and payment of the stock dividend.

 

QUESTION #10

The following information is available for Otto Corporation:

      Retained Earnings, December 31, 2018                                            $1,500,000

      Net Income for the year ended December 31, 2019                          $   250,000

 

The company accountant, in preparing financial statements for the year ending December 31, 2019, has discovered the following information:

The company’s previous bookkeeper, who has been fired, had recorded depreciation expense on a machine in 2017 and 2018 using the double-declining-balance method of depreciation. The bookkeeper neglected to use the straight-line method of depreciation which is the company’s policy. The cumulative effects of the error on prior years was $15,000, ignoring income taxes. Depreciation was computed by the straight-line method in 2019.

 

Instructions

(a)   Prepare the entry for the prior period adjustment.

(b)        Prepare the retained earnings statement for 2019

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