Question

Use the following information to answer questions 1 and 2.

Riley's Corporation was organized on January 1, 2019. The firm was authorized to issue 100,000 shares of $5 par value common stock. During 2019, Riley had the following transactions relating to stockholders’ equity: Issued 10,000 shares of common stock at $7 per share Issued 20,000 shares of common stock at $8 per share Reported a net income of $100,000 Declared and paid dividends of $50,000 Purchased 3,000 shares of treasury stock at $10 per share 8. What is total paid-in capital at the end of 2019?

a. $260,000.

b. $150,000.

c. $180,000.

d. $230,000.

2.) What is the balance of stockholders’ equity at the end of 2019?

a. $200,000.

b. $250,000.

c. $270,000.

d. $300,000.

3.) Wheels Company issued 5,000 shares of its $5 par value common stock having a fair value of $25 per share and 7,500 shares of its $15 par value preferred stock having a fair value of $20 per share for a lump sum of $253,000. The proceeds allocated to the preferred stock is:

a. $151,800.

b. $150,000.

c. $138,000.

d. $115,000.

4.) Lion Corporation issued 100,000 shares of $10 par value common stock for $1,200,000. Lion acquired 8,000 shares of its own common stock at $15 per share. Three months later, Lane sold 4,000 of these shares at $19 per share. If the cost method is used to record treasury stock transactions, which of the following should Lion credit to record the sale of the 4,000 treasury shares?

a. Treasury Stock for $76,000.

b. Treasury Stock for $60,000 and Paid-in Capital in Excess of Par for $16,000.

c. Treasury Stock for $60,000 and Paid-in Capital from Treasury Stock for $16,000.

d. Treasury Stock for $40,000 and Paid-in Capital from Treasury Stock for $36,000.

5.) The stockholders’ equity of Grange Corporation includes $200,000 of $1 par value common stock and $400,000 par value of 6% cumulative preferred stock. The board of directors of Grange declared cash dividends of $50,000 in 2019 after paying $20,000 of cash dividends in each of 2018 and 2017. What is the amount of dividends common stockholders will receive in 2019?

a, $18,000

b. $26,000.

c. $28,000.

d. $32,000.

6.) Masters Company has 490,000 shares of $10 par value common stock outstanding. During the year, Masters declared a 15% stock dividend when the market price of the shares was $36 per share. Three months later, Masters declared a $0.60 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by:

a. $2,984,100.

b. $2,646,000.

c. $485,100.

d. $462,000.

7.) A requirement for a security to be classified as held-to-maturity is:

a. ability to hold the security to maturity.

b. positive intent to hold the security to maturity.

c. the security must be a debt security.

d. all of the above.

8.) Changes in fair value of securities are reported on the income statement for which type of securities?

a. Trading securities.

b. Held-to-maturity securities.

c. Available-for-sale securities.

d. Equity method securities.

9.) Which of the following investments held by Watson Company are not reported at fair value on its balance sheet?

a. Investment in common stock held as available-for-sale securities.

b. Investment in debt securities classified as held-to-maturity securities.

c. Investment in preferred stock held as trading securities.

d. All of the above are reported at fair value.

10.) Santa Corporation declares and distributes a cash dividend to its investors. How will the receipt of these dividends affect the investment account under each of the following accounting methods?

  Fair Value Method   Equity Method

a. No Effect Decrease

b. Increase Decrease

c. No Effect No Effect

d. Decrease   No Effect

Use the following information for questions 11 and 12.

Olive Company purchased $1,500,000 of 10% bonds of McGeary Corporation on January 1, 2019, paying $1,410,375. The bonds mature January 1, 2029. Interest is payable each July 1 and January 1. The discount of $89,625 provides an effective yield of 11%. Olive Company uses the effective- interest method and plans to hold these bonds to maturity.

11.) On July 1, 2019, Olive Company should increase its Debt Investments account for the McGeary bonds for what amount?

a. $8,970.

b. $5,140.

c. $4,485.

d. $2,571.

12.) For the year ended December 31, 2019, Olive Company should report interest revenue on the income statement from the McGeary bonds of:

a. $158,970.

b. $155,283.

c. $155,130.

d. $150,000.

13.) On January 1, 2019, Moose Company acquires $500,000 of Alien Company’s 10-year bonds at a price of $532,090 to yield 9%. Interest is payable each December 31. The bonds are classified as held-to- maturity. Assuming that Moose uses the straight-line method of amortization, what is the amount of premium amortization that would be recognized in 2020 related to these bonds?

a. $3,209.

b. $2,110.

c. $2,300.

d. $2,510.

14.) On January 1, 2019, Nigel Company paid $100,000 for 8,000 shares of Piper Corporation common stock. These securities were classified as trading securities. Nigel’s ownership of Piper Corporation is 10%. Piper reported net income of $52,000 for the year ended December 31, 2019. The fair value of the Piper stock on that date was $45 per share What amount should be reported on the balance sheet of Nigel Company for the investment in Piper on December 31, 2019?

a. $360,000.

b. $315,600.

c. $300,000.

d. $284,400.

15.) James Corporation acquired a 20% interest in Davies Corporation on December 31, 2018 for $135,000. During 2019, Davies had a net income of $75,000 and paid a cash dividend of $30,000. Assuming James Corp. did not have significant influence over Davies Corp. Corporation, what is the balance in the investment account on December 31, 2019?

a. $111,000.

b. $135,000.

c. $144,000.

d. $150,000.

16.) Natalie Corporation acquired a 30% interest in Bradly Corporation on December 31, 2018 for $210,000. During 2019, Bradley had a net income of $75,000 and paid cash dividends totaling $30,000. Assuming Natalie Corp. can exercise significant influence over Bradley Corporation, what is the balance in the investment account on December 31, 2019?

a. $210,000.

b. $223,500.

c. $232,500.

d. $201,000.

17.) At December 31, 2019, Georgia Company has an equity portfolio valued at $160,000. Its cost was $132,000 and the securities were classified as trading. If the Fair Value Adjustment account has a debit balance of $8,000, which of the following entries is required at December 31, 2019?

a. Fair Value Adjustment $28,000

Unrealized Holding Gain or Loss-Income $28,000

b. Fair Value Adjustment $20,000

Unrealized Holding Gain or Loss-Income   $20,000

c. Unrealized Holding Gain or Loss-Income $28,000

Fair Value Adjustment $28,000

d. Unrealized Holding Gain or Loss-Income $20,000

Fair Value Adjustment $20,000

18.) During 2018, Woody Company purchased 80,000 shares of Jack Corporation common stock for $1,260,000 as an equity investment. The fair value of these shares was $1,200,000 at December 31, 2018. Woody sold all of the Jack stock for $17 per share in December 2019, incurring $56,000 in brokerage commissions. Woody Company should report a realized gain on the sale of the stock in 2019 of:

a. $44,000.

b. $100,000.

c. $104,000.

d. $160,000.

Answer 1

Answer to first question in the list (Riley's Corporation): 1) Paid-in-Capital: 10,000 shares of common stock at $7 per share 20,000 shares of common stock at $8 per share Total Paid-in-Capital at the end of 2019 $70,000 $160,000 $230,000 [$70000 + $160000] --> Option-(d) 2) Total Paid-in-Capital at the end of 2019 $230,000 (Ref: Part-1] Add: Net income for the year $100,000 $330,000 Less: Dividend declared and paid during the year $50,000 Treasury stock purchased during the year $30,000 [3,000 shares x $10] $80,000 Balance of stockholders' equity at the end of 2019 $250,000 ($330000 - $80000] --> Option-(b)