[kbhp1988]

I have been working on this homework assignment for a week now. I am having a hard time figuring out these last few problems. Any help at all will be appreciated. This review problem is going to help me study for my upcoming test. In advance Thanks for the help. (I have no idea of where to start on these last few problems)

1. In an effort to increase sales, Rofix Company began a sales promotion campaign on June 30, 2011. Part of this promotion included placing a special coupon in each package of candy bars sold. Customers were able to redeem ten coupons for a Frisbee. Each premium costs Rofix $1.50. Rofix estimated that 60 percent of the coupons issued will be redeemed. For the six months ended December 31, 2011, the following information is available:

Packages of candy bars sold... 3,200,000
Premiums purchased... 172,000
Coupons redeemed... 1,425,000

What is the estimated liability for premium claims outstanding at December 31, 2011?


2. On June 1, 2011, Jefferson Controls, Inc. issued $12,000,000 of 10 percent bonds to yield 12 percent. Interest is payable semiannually on May 31 and November 30. The bonds mature in 15 years. Jefferson Controls, Inc. is a calendar-year corporation.

(1) Determine the issue price of the bonds. Show computations.
(2) Prepare an amortization table through the first two interest periods using the effective-interest method.
(3) Prepare the journal entries to record bond-related transactions as of the following dates:
(a) June 1, 2011
(b) November 30, 2011
(c) December 31, 2011
(d) May 31, 2012



3. On May 1, 2010, J. acquired $300,000 of Carpenter Enterprises 12 percent bonds due in five years with interest payable semiannually on May 1 and November. The bonds were purchased at $323,165--a price to return 10 percent on the investment. On November 1, 2010, and May 1, 2011, collected the interest on the bonds. On August 1, 2011, sold the bonds at 107 plus accrued interest.

Rounding figures to the nearest dollar, provide the entries required to record the:

(1) Interest collections in 2010 and 2011, assuming that the entries for the premium amortization are made at the time interest is collected. (Use the effective-interest method.)
(2) Sale of bonds.






4. On January 2, 2006, Picard Enterprises issued $2,400,000 of 8 percent, 15-year semiannual coupon bonds to yield 7.5 percent. Each bond is convertible into 40 shares of $15 par common stock, which was trading at $20 per share on the date of the bond issue. The bonds were issued at 106. Without the conversion feature, the bonds would have been issued for 104.5.

On January 3, 2011, all of the bonds were converted into common stock. The market price of the stock was $28 per share on the date of conversion. The issue premium is amortized using the straight-line method.

(1) Provide the journal entry to record issuance of the bonds.
(2) Provide the journal entry to record the conversion of the bonds assuming Picard considers the conversion
(a) not to be a significant culminating transaction.
(b) to be a significant culminating transaction.
(3) Explain the theoretical justification for either the book value or market value method of recording conversion.

7. The Perry Company wants to raise additional equity capital. The company decides to issue 5,000 shares of $25 par preferred stock with detachable warrants. The package of the stock and warrants sells for $105. Each warrant enables the holder to purchase two shares of $10 par common stock at $30 per share. Immediately following the issuance of the stock, the stock warrants are selling at $14 each. The market value of the preferred stock without the warrants is $96.

(1) Prepare a journal entry for Perry Company to record the issuance of the preferred stock and the detachable warrants.
(2) Assuming that all the warrants are exercised, prepare a journal entry for Perry to record the exercise of the warrants.
(3) Assuming that only 70 percent of the warrants are exercised, prepare a journal entry for Perry to record the exercise and expiration of the warrants.


8. On January 1, 2011, the records of the Gerrard Corporation showed these balances:

Common stock--authorized 78,000 shares at $100 par;
issued 30,800 shares...
$3,080,000
Paid-In capital in excess of par... 264,800
Retained earnings... 2,960,000

During 2011 and 2012, these transactions occurred:

July 1, 2011 Declared stock dividend (from unissued stock) of 1 share for each 2 shares outstanding, issued September 1. (Prior to the declaration, the market value of the unissued stock was $115 per share.)
June 1, 2012 Declared stock dividend (from unissued stock) of 1 share for each 10 shares outstanding, issued August 1. (Prior to the declaration, the market value of the unissued stock was $120 per share.)

Provide the entries to record the declaration and payment of the stock dividends during 2011 and 2012.

11. On July 1, 2011, Mountain Systems acquired 8,000 shares of Precision Services' 40,000 outstanding common shares at a cost of $240,000. The book value of Precision's net assets on that date was $880,000. The following data pertain to Precision Services for 2011:

Net income reported in 2011:
January 1 - June 30... $28,000
July 1 - December 31... 36,000
Total... $64,000

Cash dividends declared and paid:
January 1 - June 30... $30,000
July 1 - December 31... 30,000
Total... $60,000

Any excess of cost over book value is attributable to depreciable properties the market value of which exceeds the carrying value. The remaining life of the equipment is 10 years.

(1) Prepare the entry to record the original investment on July 1.
(2) Prepare the necessary entries (other than acquisition) for 2011 on Mountain Systems' books using the cost method.
(3) Prepare the necessary entries (other than acquisition) for 2011 on Mountain Systems' books using the equity method.

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