1) Based on the following trial balance for Barry€s Automotive Shop, prepare an
income statement, statement of owner€s equity, and a balance sheet. Barry made no
additional investments in the company during the year.
2) On January 1, a company issued 10%, 10-year bonds with a par value of $720,000.
The bonds pay interest each July 1 and January 1. The bonds were sold for $817,860
cash, based on an annual market rate of 8%. Prepare the issuer’s journal entry to record
the first semiannual interest payment assuming the effective interest method is used.
3) A corporation plans to invest $1 million in oil exploration. The corporation is
considering two plans to raise the money. Under Plan #1, bonds with a contract rate of
interest of 6% would be issued. Under Plan #2, 50,000 additional shares of common
stock would be issued at $20 per share. The corporation currently has 300,000 shares of
stock outstanding, and it expects to earn $700,000 per year before bond interest and
income taxes. The net income and return on investment for both plans is shown below:
Comment on the relative effects of each alternative, including when one form of
financing is preferred to another.
4) What is activity-based budgeting?
5) What is the overhead volume variance? What would be the cause of a favorable
volume variance?
6) On April 1 of the current year, a company traded an old machine that originally cost
$32,000 and that had accumulated depreciation of $24,000 for a similar new machine
that had a cash price of $40,000.
1) Prepare the entry to record the exchange under the assumption that a $5,000 trade-in
allowance was received and the balance of $35,000 was paid in cash. Assume the
exchange transaction had commercial substance.
2) Prepare the entry to record the exchange under the assumption that instead of a
$5,000 trade-in allowance, a $12,500 trade-in allowance was received and the balance
of $27,500 was paid in cash. Assume the exchange transaction lacked commercial
substance.
7) Lemon and Parks are partners. On October 1, Lemon’s capital balance is $75,000,
and Parks’ capital balance is $125,000. With the partnership’s approval, Parks sells ½ of
his partnership interest to Tambling for $70,000. Prepare the journal entry to record this
transaction in the partnership records.
8) Mandarin Company has 9%, 20-year bonds outstanding with a par value of $500,000
and a carrying value of $475,000. The company calls the bonds at $482,000. Calculate
the gain or loss on the retirement of these bonds.
9) A ______________________ incurs costs without directly generating revenues.
10) On January 3, Kostansas Corporation purchased 5,000 shares of Morton, Inc. for
$40 per share plus $700 in broker commissions. These shares represent a 40%
ownership in Morton, Inc. Prepare the journal entry Kostansas Corporation should
record when Morton reports net income of $52,000 for the year on December 31.