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Intermediate Accounting Final Exam Part 3

Intermediate Accounting Final Exam Part 3
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Solution Guide / Answer Key:

ACCOUNTING
J. David Spiceland, James Sepe, and Mark Nelson (2010)
Intermediate Accounting with British Airways Annual Report, 6th Edition  McGraw-Hill
7 Multiple Choice Questions (Choose A,B, C or D and show calculations)
1) Ignatius Corporation had 7 million shares of common stock outstanding during the current calendar year. It issued ten thousand, $1,000 convertible bonds on January 1. On June 30, Ignatius issued 100,000 shares of $100 par 6% cumulative preferred stock. Dividends are declared and paid semiannually. The bonds were issued at face amount and pay interest quarterly at an annual rate of 10%. Each bond is convertible into 50 shares of common stock. Ignatius has an effective tax rate of 40%. Ignatius would report the following EPS data  (rounded) on its net income of $20 million.

2) At December 31, 2010, Mongo Inc reported on its balance sheet a net loss of $3 million related to its pension plan. The actuary for Mongo at the end of 2011 increased her estimate of future salary levels. Mongo’s entry to record the effect of this change will include:

3) Prescott Corporation issued ten thousand $1,000 bonds on January 1, 2011. They have a 10 year term and pay interest semiannually. This is the partial bond amortization schedule for the bonds.
Payment Cash Effective Interest Decrease in Balance Outstanding Balance
11,487,747
1 400,000 344,632 55,368 11,432,379
2 400,000 342,971 57,029 11,375,350
3 400,000 341,261 58,739 11,316,611
4 400,000

What is the effective annual rate of interest on the bonds?

4) On June 1, 2010, the Crocus Company began construction of a new manufacturing plant. The plant was completed on October 31, 2011. Expenditures on the project were as follows ($ in millions):
July 1, 2010 54
October 1, 2010 22
February 1, 2011 30
April 1, 2011 21
September 1, 2011 20
October 1, 2011 6

On July 1, 2010, Crocus obtained a $70 million construction loan with a 6% interest rate. The loan was outstanding through the end of October 2011. The company’s only other interest bearing debt was a long-term note for $100 million with an interest rate of 8%. This note was outstanding during all of 2010 and 2011. The company’s fiscal year-end is December 31.

What is the amount of interest that Crocus should capitalize in 2011, using the specific interest method (rounded to the nearest thousand dollars)?

5) Alamos Co. exchanged equipment and $18,000 cash for similar equipment. The book value and the fair value of the old equipment were $82,000 & $90,000 respectively. Assuming that the exchange lacks commercial substance, Alamos would record a gain/(loss) of:

6) Gulf Consulting Co. reported the following on its December 31, 2011 balance sheet:
Equipment (at cost)… $700,000
In a disclosure note, Gulf indicates that it uses straight-line depreciation over five years and estimates salvage value as 10% of cost. The average age of Gulf’s equipment is 3.5 years at December 31, 2011. What is the book value of Gulf’s equipment at December 31, 2011?

7) Black Enterprises reported the following ($ in 000’s) as of December 31, 2011. All accounts have normal balances.
Deficit 3,000
Common stock 2,000
Paid-in capital-stock options 1,000
Treasury stock at cost 400
Paid in capital-excess of par 30,000

During 2012 ($ in 000s), net income was $9,000; 25% of the treasury stock was resold for $450; cash dividends declared were $600; cash dividends paid were $500; and all of stock options expired.

What ($ in 000s) was shareholders’ equity as of December 31, 2012?

 

FILE: MS WORD

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