The Yankel Corporation’s controller prepares adjusting entries only at the end of the
fiscal
year. The following adjusting entries were prepared on December 31, 2016:
Additional information:
1> The company borrowed $30,000 on June 30, 2016. Principal and interest are due on
June 30, 2017. This note is the company’s only interest-bearing debt.
2> Insurance for the year on the company’s office buildings is $90,000. The insurance is
paid in advance.
3> On August 31, 2016, Yankel lent money to a customer. The customer signed a note
with principal and interest at 9% due in one year.
Required:
Determine the following:
1> What is the interest rate on the company’s note payable?
2> The 2016 insurance payment was made at the beginning of which month?
3> How much did Yankel lend its customer on August 31?
Miranda Company contracted with Stewart Corporation to construct custom-made
equipment. The equipment was completed and ready for use on January 1, 2016.
Miranda paid for the machine by issuing a $200,000, three-year note that bears interest
at the rate of 4%, payable annually on December 31 each year. Since the machine was
custom-built, the cash price was unknown. However, when compared to similar
contracts, 10% was deemed to be a reasonable rate of interest.
Required:
1> Prepare the journal entry by Miranda to record the purchase of equipment.
2> Prepare journal entries to record interest for each of the first two years.
Smith & Sons is a CPA firm that provides proprietary software to its clients. One of its
software packages sells for $150 and contains pre-programmed tutorials on basic
accounting concepts. Another product sells for $3,000 and contains Smith & Sons’
archive of accounting standards and articles, which Smith & Sons updates on a weekly
basis and downloads to archive users for the two years following purchase of the
product.
Required: If a customer purchases both software packages on June 1, 2016, how much
revenue
should Smith & Sons recognize for the year?
The accounting system of Carlton and Sons consists of a general journal (GJ), a cash
receipts journal (CR), a cash disbursements journal (CD), a sales journal (SJ), and a
purchases journal (PJ). For each of the following, indicate which journal should be used
to record the transaction.
Holly Springs, Inc. contracted with Coldwater Corporation to have constructed a
custom-made lathe. The machine was completed and ready for use on January 1, 2016.
Holly Springs paid for the lathe by issuing a $300,000 note due in three years. Interest,
specified at 2%, was payable annually on December 31 of each year. The cash market
price of the lathe was unknown. It was determined by comparison with similar
transactions for which 6% was a reasonable rate of interest.
Comet Products prepares its financial statements according to International Financial
Reporting Standards (IFRS). On January 1, 2016, Comet Products issued $80 million of
6%, 10-year convertible bonds at a net price of $81.6 million. Comet recently issued
similar, but nonconvertible, bonds at 99 (that is, 99% of face amount). The bonds pay
interest on June 30 and December 31. Each $1,000 bond is convertible into 30 shares of
Comet’s no par common stock. Comet records interest by the straight-line method.
On June 1, 2018, Comet notified bondholders of its intent to call the bonds at face value
plus a 1% call premium on July 1, 2018. By June 30 all bondholders had chosen to
convert their bonds into shares as of the interest payment date. On June 30, Comet paid
the semiannual interest and issued the requisite number of shares for the bonds being
converted. Required:
1> Prepare the journal entry for the issuance of the bonds by Comet.
2> Prepare the journal entry for the June 30, 2016, interest payment.
3> Prepare the journal entries for the June 30, 2018, interest payment by Comet and the
conversion of the bonds (book value method).
On January 1, 2016, Algerian Delivery had 100,000 shares of common stock
outstanding. The following transactions occurred during 2016:
March 1: Reacquired 3,000 shares, accounted for as treasury stock.
September 30: Sold all the treasury shares.
December 1: Sold 12,000 new shares for cash.
December 31: Reported a net income of $297,750.
Required:
Calculate Algerian Delivery’s basic earnings per share for the year ended December 31,
2016.
