On October 23, 2014, Wilkerson Company had a market price of $40 per share of common stock

On October 23, 2014, Wilkerson Company had a market price of $40 per share of common stock. For the previous year, Wilkerson paid an annual dividend of $1.20. Compute the dividend yield for Wilkerson Company.


Answer:

Dividend Yield = Dividends per Share of Common Stock
Market Price per Share of Common Stock
Dividend Yield = $1.20
$40 = 0.03, or 3%

On June 30, 2014, Setzer Corporation had a market price of $100 per share of common stock

On June 30, 2014, Setzer Corporation had a market price of $100 per share of common stock. For the previous year, Setzer paid an annual dividend of $4.00. Compute the dividend yield for Setzer Corporation.


Answer:

Dividend Yield = Dividends per Share of Common Stock
Market Price per Share of Common Stock
Dividend Yield = $4.00
$100
= 0.04, or 4%

On January 1, 2014, Valuation Allowance for Available-for-Sale Investments had a zero balance

On January 1, 2014, Valuation Allowance for Available-for-Sale Investments had a zero balance. On December 31, 2014, the cost of the available-for-sale securities was $24,260, and the fair value was $26,350. Prepare the adjusting entry to record the unrealized gain or loss on available-for-sale investments on December 31, 2014.


Answer:

2014
Dec. 31 Valuation Allowance for Available-for-Sale
Investments* 2,090
Unrealized Gain (Loss) on Available-for-Sale
Investments 2,090
To record increase in fair value of
available-for-sale securities.
* Available-for-sale investments at fair value,
December 31, 2014……………………………………………………………… $26,350
Available-for-sale investments at cost, December 31, 2014………………… 24,260
Unrealized gain (loss) on available-for-sale investments…………………… $ 2,090

On January 1, 2014, Valuation Allowance for Available-for-Sale Investments had a zero balance

On January 1, 2014, Valuation Allowance for Available-for-Sale Investments had a zero balance. On December 31, 2014, the cost of the available-for-sale securities was $78,400, and the fair value was $72,600. Prepare the adjusting entry to record the unrealized gain or loss on available-for-sale investments on December 31, 2014.


Answer:

2014
Dec. 31 Unrealized Gain (Loss) on Available-for-Sale
Investments* 5,800
Valuation Allowance for Available-for-Sale
Investments 5,800
To record decrease in fair value of
available-for-sale securities.
* Available-for-sale investments at fair value,
December 31, 2014……………………………………………………………… $72,600
Available-for-sale investments at cost, December 31, 2014………………… 78,400
Unrealized gain (loss) on available-for-sale investments…………………… $ (5,800)

On January 1, 2014, Valuation Allowance for Trading Investments had a zero balance

On January 1, 2014, Valuation Allowance for Trading Investments had a zero balance. On December 31, 2014, the cost of the trading securities portfolio was$41,500, and the fair value was $46,300. Prepare the December 31, 2014, adjusting journal entry to record the unrealized gain or loss on trading investments.


Answer:

2014
Dec. 31 Valuation Allowance for Trading Investments* 4,800
Unrealized Gain on Trading Investments 4,800
To record increase in fair value of
trading investments.
* Trading investments at fair value, December 31, 2014………………………… $46,300
Trading investments at cost, December 31, 2014…………………………… 41,500
Unrealized gain on trading investments………………………………………… $ 4,800

On January 1, 2014, Valuation Allowance for Trading Investments had a zero balance

On January 1, 2014, Valuation Allowance for Trading Investments had a zero balance. On December 31, 2014, the cost of the trading securities portfolio was $212,500, and the fair value was $203,600. Prepare the December 31, 2014, adjusting journal entry to record the unrealized gain or loss on trading investments.


Answer:

2014
Dec. 31 Unrealized Loss on Trading Investments* 8,900
Valuation Allowance for Trading Investments 8,900
To record decrease in fair value of
trading investments.
* Trading investments at fair value, December 31, 2014…………… $203,600
Trading investments at cost, December 31, 2014……………… 212,500
Unrealized loss on trading investments…………………………… $ (8,900)

On January 2, Yorkshire Company acquired 40% of the outstanding stock of Fain Company for $500,000

On January 2, Yorkshire Company acquired 40% of the outstanding stock of Fain Company for $500,000. For the year ended December 31, Fain Company earned income of $140,000 and paid dividends of $50,000. Prepare the entries for Yorkshire Company for the purchase of the stock, the share of Fain income, and the dividends received from Fain Company.


Answer:

Jan. 2 Investment in Fain Company Stock 500,000
Cash 500,000
Dec. 31 Investment in Fain Company Stock 56,000
Income of Fain Company 56,000
Recorded 40% of Fain Company income,
40% × $140,000.
31 Cash* 20,000
Investment in Fain Company Stock 20,000
*40% × $50,000

On January 2, Leonberger Company acquired 30% of the outstanding stock of ARO Company for $300,000

On January 2, Leonberger Company acquired 30% of the outstanding stock of ARO Company for $300,000. For the year ended December 31, ARO Company earned income of $60,000 and paid dividends of $15,000. Prepare the entries for Leonberger Company for the purchase of the stock, the share of ARO income, and the dividends received from ARO Company.


Answer:

Jan. 2 Investment in ARO Company Stock 300,000
Cash 300,000
Dec. 31 Investment in ARO Company Stock 18,000
Income of ARO Company 18,000
Recorded 30% of ARO Company
income, 30% × $60,000.
31 Cash* 4,500
Investment in ARO Company Stock 4,500
*30% × $15,000

On September 12, 2,000 shares of Aspen Company are acquired at a price of $50 per share plus a $200 brokerage fee

On September 12, 2,000 shares of Aspen Company are acquired at a price of $50 per share plus a $200 brokerage fee. On October 15, a $0.50 per-share dividend was received on the Aspen Company stock. On November 10, 1,200 shares of the Aspen Company stock were sold for $42 per share less a $150 brokerage fee. Prepare the journal entries for the original purchase, the dividend, and the sale under the cost method.


Answer:

Sept. 12 Investments—Aspen Company Stock* 100,200
Cash 100,200
*(2,000 shares × $50 per share) + $200
Oct. 15 Cash* 1,000
Dividend Revenue 1,000
*$0.50 per share × 2,000 shares
Nov. 10 Cash* 50,250
Loss on Sale of Investments 9,870
Investments—Aspen Company Stock** 60,120
*(1,200 shares × $42) – $150
**1,200 shares × ($100,200 ÷ 2,000 shares)

On March 20, 10,000 shares of Thorlite Company are acquired at a price of $30 per share plus a $250 brokerage fee

On March 20, 10,000 shares of Thorlite Company are acquired at a price of $30 per share plus a $250 brokerage fee. On May 30, a $0.25-per share dividend was received on the Thorlite Company stock. On June 15, 5,000 shares of the Thorlite Company stock were sold for $36 per share less a $200 brokerage fee. Prepare the journal entries for the original purchase, the dividend, and the sale under the cost method.


Answer:

Mar. 20 Investments—Thorlite Company Stock* 300,250
Cash 300,250
*(10,000 shares × $30 per share) + $250
May 30 Cash* 2,500
Dividend Revenue 2,500
*$0.25 per share × 10,000 shares
June 15 Cash* 179,800
Gain on Sale of Investments 29,675
Investments—Thorlite Company Stock** 150,125
*(5,000 shares × $36) – $200
**5,000 shares × ($300,250 ÷ 10,000 shares)

Journalize the entries to record the following selected bond investment transactions for Starks Products:

Journalize the entries to record the following selected bond investment transactions for Starks Products:

a. Purchased for cash $120,000 of Iceline, Inc. 5% bonds at 100 plus accrued interest of $1,000.
b. Received first semiannual interest payment.
c. Sold $60,000 of the bonds at 101 plus accrued interest of $500.


Answer:


a.
 Investments—Iceline Inc. Bonds 120,000
Interest Receivable 1,000
Cash 121,000
b.
 Cash* 3,000
Interest Receivable 1,000
Interest Revenue 2,000
* $120,000 × 5% × 1/2
c.
 Cash* 61,100
Interest Revenue 500
Gain on Sale of Investments 600
Investments—Iceline Inc. Bonds 60,000
* Sales proceeds ($60,000 × 101%)……………………… $60,600
Accrued interest…………………………………………… 500
Total proceeds from sale………………………………… $61,100

Journalize the entries to record the following selected bond investment transactions for Supper Club Trust:

Journalize the entries to record the following selected bond investment transactions for Supper Club Trust:

a. Purchased for cash $400,000 of Tyler City 6% bonds at 100 plus accrued interest of $2,000.
b. Received first semiannual interest payment.
c. Sold $200,000 of the bonds at 98 plus accrued interest of $1,000.


Answer:

a.
 Investments—Tyler City Bonds 400,000
Interest Receivable 2,000
Cash 402,000
b.
 Cash* 12,000
Interest Receivable 2,000
Interest Revenue 10,000
* $400,000 × 6% × 1/2
c.
 Cash* 197,000
Loss on Sale of Investments 4,000
Interest Revenue 1,000
Investments—Tyler City Bonds 200,000
* Sales proceeds ($200,000 × 98%)…………………………$196,000
Accrued interest…………………………………………… 1,000
Total proceeds from sale……………………………………$197,000

The following financial statement data for years ending December 31 for Tango Company are shown below.

The following financial statement data for years ending December 31 for Tango Company are shown below.


2014 2013
Cost of merchandise sold $3,864,000 $4,001,500
Inventories:
Beginning of year 770,000 740,000
 End of year 840,000 770,000

a. Determine the inventory turnover for 2014 and 2013.

b. Determine the number of days’ sales in inventory for 2014 and 2013. Round to one decimal place.

c. Does the change in inventory turnover and the number of days’ sales in inventory from 2013 to 2014 indicate a favorable or an unfavorable trend?


Answer:

a. Inventory Turnover 2014 2013
Cost of merchandise sold
Inventories:
Beginning of year
End of year
Average inventory
Inventory turnover
$3,864,000 $4,001,500
$770,000 $740,000
$840,000 $770,000
$805,000 $755,000
[($770,000 + $840,000) ÷ 2] [($740,000 + $770,000) ÷ 2]
4.8 5.3
($3,864,000 ÷ $805,000) ($4,001,500 ÷ $755,000)
Number of Days’ Sales
b. in Inventory 2014 2013
Cost of merchandise sold
Average daily cost of
$3,864,000 $4,001,500
merchandise sold
Average inventory
Number of days’ sales in
inventory
$10,586.3 $10,963.0
($3,864,000 ÷ 365 days) ($4,001,500 ÷ 365 days)
$805,000 $755,000
[($770,000 + $840,000) ÷ 2] [($740,000 + $770,000) ÷ 2]
76.0 days 68.9 days
($805,000 ÷ $10,586.3) ($755,000 ÷ $10,963.0)
c. The decrease in the inventory turnover from 5.3 to 4.8 and the increase in the
number of days’ sales in inventory from 68.9 days to 76.0 days indicate
unfavorable trends in managing inventory.

The following financial statement data for years ending December 31 for Holland Company are shown below.

The following financial statement data for years ending December 31 for Holland Company are shown below.


2014 2013
Cost of merchandise sold $1,452,500 $1,120,000 Inventories:
Beginning of year 380,000 320,000
 End of year 450,000 380,000


a. Determine the inventory turnover for 2014 and 2013.

b. Determine the number of days’ sales in inventory for 2014 and 2013. Round to one decimal place.

c. Does the change in inventory turnover and the number of days’ sales in inventory from 2013 to 2014 indicate a favorable or an unfavorable trend?


Answer:

a. Inventory Turnover 2014 2013
Cost of merchandise sold
Inventories:
Beginning of year
End of year
Average inventory
Inventory turnover
$1,452,500 $1,120,000
$380,000 $320,000
$450,000 $380,000
$415,000 $350,000
[($380,000 + $450,000) ÷ 2] [($320,000 + $380,000) ÷ 2]
3.5 3.2
($1,452,500 ÷ $415,000) ($1,120,000 ÷ $350,000)
Number of Days’ Sales
b. in Inventory 2014 2013
Cost of merchandise sold
Average daily cost of
merchandise sold
Average inventory
Number of days’ sales in
inventory
$1,452,500 $1,120,000
$3,979.5 $3,068.5
($1,452,500 ÷ 365 days) ($1,120,000 ÷ 365 days)
$415,000 $350,000
[($380,000 + $450,000) ÷ 2] [($320,000 + $380,000) ÷ 2]
104.3 days 114.1 days
($415,000 ÷ $3,979.5) ($350,000 ÷ $3,068.5)
c. The increase in the inventory turnover from 3.2 to 3.5 and the decrease in the
number of days’ sales in inventory from 114.1 days to 104.3 days indicate
favorable trends in managing inventory.

During the taking of its physical inventory on December 31, 2014, Waterjet Bath Company incorrectly

During the taking of its physical inventory on December 31, 2014, Waterjet Bath Company incorrectly counted its inventory as $728,660 instead of the correct amount of $719,880. Indicate the effect of the misstatement on Waterjet Bath’s December 31, 2014, balance sheet and income statement for the year ended December 31, 2014.


Answer:

Balance Sheet:
Merchandise inventory overstated*……………………
Current assets overstated………………………………
Total assets overstated…………………………………
Owner’s equity overstated………………………………
Income Statement:
Cost of merchandise sold understated………………
Gross profit overstated……………………………………
Net income overstated…………………………………
* $728,660 – $719,880 = $8,780
Amount of Misstatement
Overstatement (Understatement)
$8,780
8,780
8,780
8,780
$(8,780)
8,780
8,780

During the taking of its physical inventory on December 31, 2014, Sport Interiors Company incorrectly

During the taking of its physical inventory on December 31, 2014, Sport Interiors Company incorrectly counted its inventory as $113,900 instead of the correct amount of $118,350. Indicate the effect of the misstatement on Sport Interiors’ December 31, 2014, balance sheet and income statement for the year ended December 31, 2014.


Answer:

Balance Sheet:
Merchandise inventory understated*…………………
Current assets understated………………………………
Total assets understated………………………………
Owner’s equity understated……………………………
Income Statement:
Cost of merchandise sold overstated…………………
Gross profit understated………………………………
Net income understated…………………………………
* $118,350 – $113,900 = $4,450
Amount of Misstatement
Overstatement (Understatement)
$(4,450)
(4,450)
(4,450)
(4,450)
$ 4,450
 (4,450)
 (4,450)

On the basis of the following data, determine the value of the inventory at the lower of cost or market

On the basis of the following data, determine the value of the inventory at the lower of cost or market. Apply lower of cost or market to each inventory item, as shown in Exhibit 9.


Item
Inventory
Quantity
Unit
Cost Price
Unit
Market Price
JFW1 6,330 $10 $11
SAW9 1,140 36 34


Answer:

Commodity
Inventory
Quantity
Unit
Cost
Price
Unit
Market
Price
Total
Cost Market
Lower of
C or M
JFW1 6,330 $10 $11 $ 63,300 $ 69,630 $ 63,300
SAW9 1,140 36 34 41,040 38,760 38,760
Total $104,340 $108,390 $102,060

On the basis of the following data, determine the value of the inventory at the lower of cost or market

On the basis of the following data, determine the value of the inventory at the lower of cost or market. Apply lower of cost or market to each inventory item, as shown in Exhibit 9.


Item
Inventory
Quantity
Unit
Cost Price
Unit
Market Price
1107B 450 $80 $78
1110M 75 60 64


Answer:

Commodity
Inventory
Quantity
Unit
Cost
Price
Unit
Market
Price
Total
Cost Market
Lower of
C or M
1107B 450 $80 $78 $36,000 $35,100 $35,100
1110M 75 60 64 4,500 4,800 4,500
Total $40,500 $39,900 $39,600

The units of an item available for sale during the year were as follows:

The units of an item available for sale during the year were as follows:



Jan. 1 Inventory 20 units at $360 $ 7,200
Aug. 13 Purchase 260 units at $342 88,920
Nov. 30 Purchase 40 units at $357 14,280
Available for sale 320 units $110,400


There are 57 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost using (a) the first-in, first-out (FIFO) method; (b) the last-in, first-out (LIFO) method; and (c) the weighted average cost method.


Answer:
a. First-in, first-out (FIFO) method: $20,094 = (40 units × $357) + (17 units × $342)
b. Last-in, first-out (LIFO) method: $19,854 = (20 units × $360) + (37 units × $342)
c. Weighted average cost method: $19,665 (57 units × $345), where average cost = $345 = $110,400 ÷ 320 units

The units of an item available for sale during the year were as follows:Jan. 1 Inventory 24 units at $135 $

The units of an item available for sale during the year were as follows:


Jan. 1 Inventory 24 units at $135 $ 3,240
May 7 Purchase 36 units at $150 5,400
Nov. 23 Purchase 30 units at $162 4,860
Available for sale 90 units $13,500


There are 23 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost using (a) the first-in, first-out (FIFO) method; (b) the last-in, first-out (LIFO) method; and (c) the weighted average cost method.


Answer:
a. First-in, first-out (FIFO) method: $3,726 = 23 units × $162
b. Last-in, first-out (LIFO) method: $3,105 = 23 units × $135
c. Weighted average cost method: $3,450 (23 units × $150), where average cost = $150 = $13,500 ÷ 90 units