Ramsgate Company has used the FIFO method for inventory valuation since it began
business in 2012, but has elected to change to the average cost method starting in 2015.
Year-end inventory valuations under each method are shown below:
Required:
How, and when, would Ramsgate reflect the change in accounting principle in its
financial statements (ignore income taxes)?
During the current year, Compton Crate Corporation acquired all of the outstanding
common stock of Little Lacy Ltd. (LLL), paying $60 million in cash. Compton
recorded the assets acquired as follows:
The book value of LLL’s assets and owners’ equity before the acquisition were $50
million and $30 million, respectively.
Required: Compute the fair value of LLL’s liabilities that Compton assumed in the
acquisition.
Pastner Brands is a calendar-year firm with operations in several countries. As part of
its executive compensation plan, at January 1, 2016, the company had issued 20 million
executive stock options permitting executives to buy 20 million shares of stock for $25.
The vesting schedule is 20% the first year, 30% the second year, and 50% the third year
(graded-vesting). The fair value of the options is estimated as follows:
Required:
1) Determine the compensation expense related to the options to be recorded each year
for 2016-2018, assuming Pastner accounts for each vesting date as a separate award.
2) Determine the compensation expense related to the options to be recorded each year
for 2016-2018, assuming Pastner uses the straight-line method over the three-year
vesting period.
Use I = Increase, D = Decrease, or N = No effect, to indicate the effect on total
shareholders’ ‘equity for each of the listed transactions.
____ Declaration of a property dividend.
____ Net income for the year.
____ Purchase of treasury stock at a cost greater than the original issue price.
____ Purchase of treasury stock at a cost less than the original issue price.
____ Issue common stock.
____ Resale of treasury stock.
On February 1, 2016, Wolf Inc. issued 10% bonds dated February 1, 2016, with a face
amount of $200,000. The bonds sold for $239,588 and mature in 20 years. The effective
interest rate for these bonds was 8%. Interest is paid semiannually on July 31 and
January 31. Wolf’s fiscal year is the calendar year. Wolf uses the effective interest
method of amortization.
Required:
1> Prepare the journal entry to record the bond issuance on February 1, 2016.
2> Prepare the entry to record interest on July 31, 2016.
3> Prepare the necessary journal entry on December 31, 2016.
4> Prepare the necessary journal entry on January 31, 2017.
The following are comparative balance sheets and an income statement for Wentworth
Company.
Cash dividends of $45,000 were paid in 2016.
Required: Prepare a statement of cash flows for 2016 using the direct method.
Differentiate between the projected benefit obligation, the accumulated benefit
obligation, and the vested benefit obligation.
On January 1, 2016, Morton Sales Co. issued zero-coupon bonds with a face value of
$6 million for cash. The bonds mature in 10 years and were issued at a price of
$3,050,100. Required: What will Morton Sales Co. report on these bonds in its
December 31, 2016, balance sheet?