Last_Exam

Answer The Following Problems:

Problem (1)

Gonzalez Equipment Company sold 600 Rollomatics during 2007 at $4,000 each.

During 2007, Gonzalez spent $30,000 servicing the 2-year warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.

Instructions

(a) Prepare 2007 entries for Gonzalez using the expense warranty approach. Assume that Gonzalez estimates the total cost of servicing the warranties will be $150,000 for 2 years.

(b) Prepare 2007 entries for Gonzalez assuming that the warranties are not an integral part of the sale. Assume that of the sales total, $200,000 relates to sales of warranty contracts. Gonzalez estimates the total cost of servicing the warranties will be $150,000 for 2 years. Estimate revenues earned on the basis of costs incurred and estimated costs

Problem (2)

On January 1, 2007, Spalding Company sold 12% bonds having a maturity value of $1,000,000 for $1,075,814.74 , which provides the bondholders with a 10% yield.

The bonds are dated January 1, 2007, and mature January 1, 2012, with interest payable December 31 of each year. Spalding Company allocates interest and unamortized discount or premium on the effective interest basis.

Instructions

(a) Prepare the journal entry at the date of the bond issuance.

(b) Prepare a schedule of interest expense and bond amortization for 2007–2009.

(c) Prepare the journal entry to record the interest payment and the amortization for 2007.

(d) Prepare the journal entry to record the interest payment and the amortization for 2009.

Problem (3)

Overland Corporation is authorized to issue 250,000 shares of $1 par value common stock. During 2007, Overland Corporation took part in the following selected transactions.

1. Issued 55,000 shares of stock at $76 per share, less costs related to the issuance of the stock totaling $27,000.

2. Issued 10,000 shares of stock for land appraised at $815,000. The stock was actively traded on a national stock exchange at approximately $78 per share on the date of issuance.

3. Purchased 6,000 shares of treasury stock at $74 per share. The treasury shares purchased were issued in 2003 at $46 per share.

Instructions

(a) Prepare the journal entry to record item 1.

(b) Prepare the journal entry to record item 2.

(c) Prepare the journal entry to record item 3 using the cost method.

Problem (4)

On July 1, 2007, Allied Material Company adopted a stock option plan that granted options to key executives to purchase 100,000 shares of the company’s

$1 par value common stock. The options were granted on January 1, 2008, and were exercisable 3 years after the date of grant if the grantee was still an employee of the company.

The options expired 4 years from date of grant. The option price was set at $66, and the fair value option pricing model determines the total compensation expense to be $660,000. All of the options were exercised February 1, 2011, when the market price was $78 a share.

Instructions

Prepare journal entries relating to the stock option plan for the years 2007 through 2011. Assume that the employee performs services equally in 2008, 2009, and 2010.

Problem (5)

The following information is available for Quigley Company at December 31, 2007, regarding its investments.

The company did not have any investments prior to 2007.

Instructions

(a) Prepare the adjusting entry (if any) for 2007, assuming the securities are classified as trading.

(b) Prepare the adjusting entry (if any) for 2007, assuming the securities are classified as availablefor-sale.

(c) Discuss how the amounts reported in the financial statements are affected by the entries in (a) and (b).

Good Luck