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ACC 202 Intermediate Accounting II

Name__________________________________

1. On Jan 1,2008 XYZ Co purchased 12,000 shares of ABC Co for $15 a share. ABC has 100,000 shares outstanding. ABC reported net income of $60,000 and paid dividends of $5,000. On Dec 31, 2008 ABC had a market value of $18 a share. XYZ accounts for this investment as available for sale.

Make the appropriate journal entries for 2008.

A) Purchase

B) Receipt of dividends

C) Yearend adjustments

2. Use the same information as #1. On Dec 31, 2009 the value of ABC stock was $17.50 per share.
Make the appropriate adjusting entry as of December 31, 2009.

3.
On Jan 1, 2008 XYZ purchased 11,000 shares of ABC Co for $20 a share. XYZ now accounts for its investment in ABC using the equity method. ABC reported net income of $120,000 and paid dividends of 30,000.

Make all of the necessary journal entries for 2008.

4. XYZ invested in the bonds of ABC Co. The bonds had a maturity of $80,000 due in 10 years, paying annual interest of 6%, semiannually on June 30 and Dec 31. The market rate was 8%. XYZ paid $69,128.

Interest
Received Interest
Revenue
Amortization Carrying
Value $69,128
1
2
3
4

Fill in the above chart to account for the held to maturity investment and prepare journal entries for the amortization and receipt of interest:

June 30, Year 1

Dec 31, Year 2

5. . The following information pertains to Crystal Inc.’s portfolio of investments for the year ended December 31, 2005:


Cost Fair
Value
12/31/04
2005
Purchases
2005
Sales Fair
Value
12/31/05
Held-to-maturity securities

Security Joy
$128,000
$130,000

. Assume that Security Joy is a debt security that was purchased at a premium. The premium amortization for 2005 was $3,000. All declines in fair value are considered temporary.

What is the amount of Security Joy at December 31, 2005 that should be carried on the balance sheet?

6.


. The following information pertains to Crystal Inc.’s portfolio of investments for the year ended December 31, 2005:


Cost Fair
Value
12/31/04
2005
Purchases
2005
Sales Fair
Value
12/31/05
Trading securities

Security Kris $700,000 $725,000 705,000

Security Andrew 100,000 110,000 $150,000



a) What is the amount of Security Kris at December 31, 2005 that should be carried on the balance sheet?

b) What journal entry should be recorded on Dec 31, 2005 for Security Kris to record the adjustment?

c) What journal entry should be made upon the sale of Security Andrew?

7.


Cost Fair
Value
12/31/04
2005
Purchases
2005
Sales Fair
Value
12/31/05

Avail able-for-sale equity securities
Security Stan 400,000 380,000 500,000

Security Lloyd
100,000
95,000
102,000

How much unrealized gain or loss should be reported on the balance sheet as of December 31, 2005?

8. ABC Company buys a bond as an available for sale security. The bond has a face value of $100,000 and matures in 10 years. The coupon is 6% and interest is paid semiannually on July 1 and December 31. The market rate of interest is 4%. The bond was purchased on January 1, Year 1 for $116,221.79. The carrying value of the bond after amortization on Dec 31, Year 1 was $114,870.66. The FMV of the bond was $113, 925.00 on Dec 31, Year 1.

Record the entry for receipt of interest on July 1, Year 1. Show computations.

Make the appropriate adjusting journal entry for Dec 31, Year 1.

The carrying value of the bond after amortization on Dec 31, Year 2 was $113,465. 49. The FMV of the bond on Dec 31, Year 2 was $$113, 524.

Make the appropriate adjusting journal entry for Dec 31, Year 2.

9. ABC company purchased an available for sale bond for $175,000. The FMV of the bond at the end of the second year was $145,000. The appropriate journal entry was made on December 31, Year 2.

On January 2, Year 3 it was decided that the capacity of the company to pay interest was impaired. Prepare the appropriate journal entry to record the impairment of the bond. The value was estimated to be $142,000.

10. XYZ Co had the following payroll transactions for the first pay period in 2008.

Wages $10000
Federal income tax withheld 880

Social security tax is 6.2% and medicare tax is 1.45%. State unemployment tax is 6.2%.

Prepare the journal entry to record the wage expense.

Prepare the journal entry to record the payroll tax expense.

11.
10 employees were each granted 100 stock options on Jan 1 Year 1 . The par value of the stock was $1 per share. the exercise price of the option was $20 per share. The value of the option package was $100,000. The employees must work 4 years to be vested.

a) All employees remained on the job in year 1. Record the journal entry on Dec 31 to recognize compensation expense.

b) In year 2, three employees quit. Record the journal entry on Dec 31 to recognize compensation expense.

c) In year 3, one of the employees who quit in year 2 was reinstated and was treated as if he had never left. Record the entry to recognize compensation expense for the year.

d) In year 4, one employee quit. Record the entry to recognize compensation expense for the year.

e) 6 employees exercise their options and 1 did not. Record the appropriate entries.