COMPREHENSIVE EXAMINATION C
(Chapters 9 – 11)
Approximate
Problem Topic Points Minutes
C – I Multiple Choice ……………………………………. 20 20
C – II Ratios ………………………………………………… 10 10
C – III Corporation Entries ………………………………. 22 15
C – IV Bonds Payable ……………………………………… 20 15
C – V Plant Asset Disposal Entries ………………….. 16 15
C – VI Depreciation Methods ……………………………. 12 10
100 85
Checking Work ……………………………………. 5
90
Test Bank for Financial Accounting, Ninth Edition
C-2
Problem C – I — Multiple Choice (20 points)
Circle the one best answer.
1. The amortization of premium on bonds payable
a. will increase bond interest expense.
b. should take place over a period not to exceed 40 years.
c. will decrease bond interest expense.
d. will increase bond interest revenue.
2. A corporation issued $900,000 of 6%, 5-year bonds on January 1, at 102. Interest is paid
semiannually on January 1 and July 1. If the corporation uses the straight-line method of
amortization, the amount of bond interest expense to be recognized on July 1 is
a. $54,000.
b. $27,000.
c. $28,800.
d. $25,200.
3. A $900,000, 5%, 20-year bond was issued at 99. The proceeds received from the bond
issuance are
a. $900,000.
b. $891,000.
c. $918,000.
d. $882,000.
4. A prior period adjustment
a. appears on the income statement as an extraordinary item.
b. is a correction of an error, made directly to retained earnings.
c. is made when preferred dividends in arrears are finally paid.
d. is made to reverse an adjusting entry.
5. Dixon Company purchases 1,000 shares of its common stock for $20,000. The $20,000
amount should be debited to
a. an asset account.
b. Treasury Stock.
c. Common Stock.
d. Retained Earnings.
6. The X Company has the following stock outstanding:
7% Preferred stock, $100 par value, cumulative $600,000
Common stock, $50 par value $800,000
Preferred stock dividends are in arrears for 2013 and 2014. If the company declares and
pays $150,000 in dividends in 2015, the amount received by the preferred stockholders
would be
a. $84,000.
b. $42,000.
c. $126,000.
d. $150,000.
Comprehensive Examination C
C-3
7. Equipment was purchased for $96,000 and has a book value of $32,000 and a
depreciable cost of $80,000. The estimated salvage value is
a. $32,000.
b. $64,000.
c. $48,000.
d. $16,000.
8. Anne Company has total cash register receipts of $39,690. This total includes a 5% sales
tax. The entry to record the receipts will include a
a. debit to Sales Tax Expense for $1,890.
b. credit to Sales Revenue for $36,690.
c. credit to Sales Taxes Payable for $1,986.
d. credit to Sales Taxes Payable for $1,890.
9. Depletion expense is computed using the
a. double-declining-balance method.
b. effective interest method.
c. straight-line method.
d. units-of-activity method.
10. A company purchased a delivery truck on January 1, 2014, for $18,000. It is estimated
that the delivery truck will have a $4,000 salvage value at the end of its 5-year useful life.
If the company recorded depreciation expense of $2,800 for the year 2015 on the delivery
truck, the depreciation method used by the company is
a. not determinable.
b. the straight-line method.
c. the units-of-activity method.
d. the double-declining-balance method.
Test Bank for Financial Accounting, Ninth Edition
C-4
Problem C – II — Ratios (8 points)
The following information is available for Dibble Corporation:
2015 2014
Common stockholders’ equity $1,100,000 $900,000
Dividends paid to common stockholders 59,500 57,600
Dividends paid to preferred stockholders 20,000 20,000
Net income 265,000 240,000
Common shares outstanding 100,000 100,000
Instructions
Calculate each of the following for 2015:
(a) Payout ratio
(b) Return on common stockholders’ equity
Comprehensive Examination C
C-5
Problem C – III — Corporation Entries (22 points)
Sunset Corporation stockholders’ equity consisted of the following on January 1, 2015:
Stockholders’ Equity
Paid-in capital
Capital stock
5% Preferred stock, $100 par value, cumulative,
50,000 shares authorized, 30,000 shares issued
and outstanding $ 3,000,000
Common stock, no par, $25 stated value, 1,000,000
shares authorized, 400,000 shares issued and
outstanding 10,000,000
Total capital stock 13,000,000
Additional paid-in capital
In excess of par value—preferred $300,000
In excess of stated value—common 600,000 900,000
Total paid-in capital 13,900,000
Retained earnings (Note A) 4,100,000
Total stockholders‘ equity $18,000,000
Note A: Preferred dividends are in arrears for 2014.
Instructions
Prepare the appropriate journal entries, if any, for the following transactions in 2015. You may
omit journal entry explanations but you should show computations.
1/25/15 Issued 20,000 shares of common stock for $40 per share.
2/18/15 The Board of Directors declared an annual cash dividend on preferred and common
stock totaling $700,000, payable on March 15, to stockholders of record on February
28. (Record dividends payable on preferred and common stock in separate accounts.)
2/28/15 Date of record for cash dividends on preferred and common stock.
Test Bank for Financial Accounting, Ninth Edition
C-6
3/15/15 Paid the cash dividend to preferred and common stockholders.
5/20/15 Declared a 10% stock dividend on the common stock, distributable on June 15, to
stockholders of record on May 31. The market value of Sunset Corporation’s common
stock was $40 per share.
6/15/15 Distributed stock dividend to common stockholders.
7/10/15 Purchased 40,000 shares of common stock for the treasury at $44 per share.
Comprehensive Examination C
C-7
Problem C – IV — Bonds Payable (20 points)
Ritter Company issues $1,200,000 of 10%, 10-year bonds on January 1, 2015, at 102. Interest is
payable semiannually on July 1 and January 1. The company uses the straight-line method of
amortization.
Instructions
(a) Journalize the entries for the bonds on (1) January 1, 2015, (2) July 1, 2015, and (3)
December 31, 2015.
(b) Show the balance sheet presentation of the bonds at December 31, 2015.
(c) Assume on July 1 2015, after paying interest, Ritter calls bonds having a face value of
$600,000. The call price is 101. Record the redemption of the bonds.
Test Bank for Financial Accounting, Ninth Edition
C-8
Problem C – V — Plant Asset Depreciation and Disposal Entries (16 points)
Prepare the necessary journal entries to record the following transactions in 2015 for Jano
Company.
March 1 Exchanged old store equipment and $60,000 cash for new store equipment. The old
store equipment originally cost $72,000 and had a book value of $48,000 on the date
of exchange. The old store equipment had a fair value of $57,000 on the date of
exchange. Assume depreciation on the old equipment has already been recorded for
the current year. The exchange had commercial substance.
July 31 Exchanged a delivery truck and $100,000 cash for a new delivery truck. The old
delivery truck originally cost $108,000 and had accumulated depreciation of $76,000
on the date of exchange. The fair value of the old delivery truck on the date of
exchange was $24,000. Assume the depreciation on the truck has already been
recorded for the current year. The exchange had commercial substance.
Aug. 31 Equipment with a 4-year useful life was purchased on January 1, 2012, for $80,000
and was sold for $28,000 on September 1, 2015. The equipment had been
depreciated using the straight-line method with an estimated salvage value of
$14,000. Depreciation Expense was last recorded on December 31, 2014.
Comprehensive Examination C
C-9
Problem C – VI — Depreciation Methods (12 points)
The following information is available for Queen Company, which has an accounting year-end on
December 31, 2015.
1. A truck was purchased on June 1, 2013, for $200,000. It was estimated to have a $20,000
salvage value after being driven 120,000 miles. During 2015, the truck was driven 20,000
miles. The units–of-activity method of depreciation used.
2. A building was purchased on January 1, 1988, for $3,000,000. It is estimated to have a
$30,000 salvage value at the end of its 40-year useful life. The straight-line method of
depreciation is being used.
3. Store equipment was purchased on January 1, 2014, for $280,000. It was estimated that
the store equipment would have a $28,000 salvage value at the end of its 5-year useful life.
The double-declining balance method of depreciation is being used.
Instructions
Complete the table shown below by filling in the appropriate amounts.
Assets
Accumulated
Depreciation
1/1/15
Depreciation
Expense for
2015
Truck
$ 75,000
$
Building
$2,004,750
$
Equipment
$ 112,000
$
Test Bank for Financial Accounting, Ninth Edition
C-10
Solutions — Comprehensive Examination C
Comprehensive Examination C
C-11
Problem C – IV — Solution (20 points)
Test Bank for Financial Accounting, Ninth Edition
C-12
Problem C – VI — Solution (12 points)