CPA PRACTICE PROBLEM (CPAPP) #1 ACCT 322

Integrative Accounting Topics II Pro!essor "eBos#e$ %a&& 2'13

"ue Octo(er )* 2'13

Instructions: T+is is an in,ivi,ua& assign-ent. /+i&e it is per-itte, to 0or# in groups* eac+ stu,ent 0i&& (e e1pecte, to +an, in on separate paper apart !rot+e 2uestions t+eir in,ivi,ua& hand-written responses for each question s+o0ing t+e necessar$ 0or# it too# to get to t+e ans0er. Eac+ stu,ent -ust a&so turn in a completed scantron form PAR 289 (red one) 0it+ a&& -u&tip&e c+oice 2uestions !i&&e, in. Do not staple our scantron to our wor!. I! $ou c+ose to 0or# as a group* p&ease inc&u,e t+e na-es o! a&& ot+er group -e-(ers 0it+ $our ans0ers* t+is is !or recor,3#eeping purposes an, 0i&& not +ave an$ e!!ect on $our gra,e. Attac+ a pro!essiona& cover page t$pe, in /or, an, insert scantron un,er cover page. P&ease ,o not stap&e t+e scantron. %ai&ure to !o&&o0 an$ o! t+ese instructions 0i&& resu&t in 1 pro!essiona& a0areness point (PAP) an, a 1' point ,e,uction !ro- $our !ina& score !or t+is pro(&e- set. 4ou s+ou&, s+o0 consecutive nu-(ering 13)' on $our +an,30ritten so&utions.

"#$RI%&: 'A#( )*'"+I$% ,--. is worth 2/0 points each for a total of ,.. Points/

In1estments ,/
On Apri& 1* 2''1* 5a1e* Inc. purc+ase, 62''*''' !ace va&ue* 78 95 Treasur$ :otes !or 617;*<''* inc&u,ing accrue, interest o! 6)*<''. T+e notes -ature =u&$ 1* 2''2* an, pa$ interest se-iannua&&$ on =anuar$ 1 an, =u&$ 1. 5a1e uses t+e straig+t3&ine -et+o, o! a-orti>ation an, inten,s to +o&, t+e notes to -aturit$. In its Octo(er 31* 2''1 (a&ance s+eet* t+e carr$ing a-ount o! t+is invest-ent s+ou&, (e a. (. c. ,. 6 6 6 6 17)*''' 17?*;'' 17@*2'' 177*'''

2/ "ata regar,ing Ba&& Corp.As avai&a(&e3

!or3sa&e securities !o&&o0 Cost 6 1<'*''' 6 1<'*''' Mar#et Ba&ue 6 13'*''' 6 1?'* '''

"ece-( er 31* 2''' "ece-( er 31* 2''1

"i!!erences (et0een cost an, -ar#et va&ues are consi,ere, te-porar$. Ba&&As 2''1 ot+er co-pre+ensive inco-e 0ou&, (e a. (. c. ,. 6 3'*''' 6 2'*''' 6 1'*''' 6'

2/

Ree, Insurance Co. (egan operations on =anuar$ 1* 2''1. T+e !o&&o0ing in!or-ation pertains to Ree,As "ece-(er 31* 2''1 port!o&io o! -ar#eta(&e e2uit$ securities Tra,ing securities 6 3?'*''' 32'*''' 3')*''' Avai&a(&e3!or3 sa&e securities 6 <<'*''' )<'*''' )2'*'''

-/

Aggregate Cost Aggregate Mar#et Ba&ue Aggregate &o0er o! cost or -ar#et va&ue app&ie, to eac+ securit$ in t+e port!o&io

:o&a +as a port!o&io o! -ar#eta(&e e2uit$ securities t+at it ,oes not inten, to se&& in t+e near ter-. Eo0 s+ou&, :o&a c&assi!$ t+ese securities* an, +o0 s+ou&, it report unrea&i>e, gains an, &osses !rot+ese securitiesD a. C&assi!$ as Tra,ing securities Avai&a(&e3!or3 sa&e securities Tra,ing securities Avai&a(&e3!or3 sa&e securities Report as a Co-ponent o! inco-e !rocontinuing operations 5eparate co-ponent o! ot+er co-pre+ensive inco-e 5eparate co-ponent o! ot+er co-pre+ensive inco-e Co-ponent o! inco-e !rocontinuing operations

(.

c. I! t+e -ar#et ,ec&ines are Cu,ge, to (e te-porar$* 0+at a-ounts s+ou&, Ree, report as a &oss on t+ese securities in its "ece-(er 31* 2''1 inco-e state-entD Tra,ing securities a. (. c. ,. 6 )'*''' 6' 6 )'*''' 6 <?*''' Avai&a(&e3!or3sa&e securities 6' 6 1''*''' 6 1''*''' 6 13'*'''

,.

0/

On =anuar$ 1'* 2''1* Bo1* Inc. purc+ase, -ar#eta(&e e2uit$ securities o! Fno1* Inc. an, 5cot* Inc.* neit+er o! 0+ic+ Bo1 cou&, signi!icant&$ in!&uence. Bo1

c&assi!ie, (ot+ securities as avai&a(&e3!or3 sa&e. At "ece-(er 31* 2''1* t+e cost o! eac+ invest-ent 0as greater t+an its !air -ar#et va&ue. T+e &oss on t+e Fno1 invest-ent 0as consi,ere, ot+er3t+an3 te-porar$ an, t+at on 5cot 0as consi,ere, te-porar$. Eo0 s+ou&, Bo1 report t+e e!!ects o! t+ese investing activities in its 2''1 inco-e state-entD I. E1cess o! cost o! Fno1 stoc# over its -ar#et va&ue. II. E1cess o! cost o! 5cot stoc# over its -ar#et va&ue. a. (. c. ,. An unrea&i>e, &oss e2ua& to I p&us II. An unrea&i>e, &oss e2ua& to I on&$. A rea&i>e, &oss e2ua& to I on&$. :o inco-e state-ent e!!ect.

its I-a invest-ent. T+is re!&ects t+e !act t+at Pa& accounts !or its I-a invest-ent a. As an avai&a(&e3!or3sa&e invest-ent* an, on&$ a portion o! I-aAs 2''1 ,ivi,en,s represent earnings a!ter Pa&As ac2uisition. (. As an avai&a(&e3!or3sa&e invest-ent* an, its carr$ing a-ount e1cee,e, t+e proportionate s+are o! I-aAs -ar#et va&ue. c. As an e2uit$ invest-ent* an, I-a incurre, a &oss in 2''1. ,. As an e2uit$ invest-ent* an, its carr$ing a-ount e1cee,e, t+e proportionate s+are o! I-aAs -ar#et va&ue.

3/

On (ot+ "ece-(er 31* 2'''* an, "ece-(er 31* 2''1* Fopp Co.As on&$ -ar#eta(&e e2uit$ securit$ +a, t+e sa-e -ar#et va&ue* 0+ic+ 0as (e&o0 cost. Fopp consi,ere, t+e ,ec&ine in va&ue to (e te-porar$ in 2''' (ut ot+er t+an te-porar$ in 2''1. At t+e en, o! (ot+ $ears t+e securit$ 0as c&assi!ie, as a noncurrent asset. Fopp consi,ers t+e invest-ent to (e avai&a(&e3!or3sa&e. /+at s+ou&, (e t+e e!!ects o! t+e ,eter-ination t+at t+e ,ec&ine 0as ot+er t+an te-porar$ on FoppAs 2''1 net noncurrent assets an, net inco-eD a. :o e!!ect on (ot+ net noncurrent assets an, net inco-e. (. :o e!!ect on net noncurrent assets an, ,ecrease in net inco-e. c. "ecrease in net noncurrent assets an, no e!!ect on net inco-e. ,. "ecrease in (ot+ net noncurrent assets an, net inco-e.

"toc!holders5 'quit 8/
/att Co.Gs stoc#+o&,ersG e2uit$ at =anuar$ 1* 2''@ is as !o&&o0s Co--on stoc#* 61' par va&ueH aut+ori>e, 3''*''' s+aresH Outstan,ing 22<*''' s+ares Pai,3in capita& in e1cess o! par Retaine, earnings Tota& 6 2*2<'*'' ' 7''*''' 2*17'*'' ' 6 <*3)'*'' '

"uring 2''@* /att +a, t+e !o&&o0ing stoc# transactions Ac2uire, ?*''' s+ares o! its stoc# !or 62@'*'''. 5o&, 3*?'' treasur$ s+ares at 6<' a s+are. 5o&, t+e re-aining treasur$ s+ares at 6)1 per s+are. :o ot+er stoc# transactions occurre, ,uring 2''@. Assu-ing /att uses t+e cost -et+o, to recor, treasur$ stoc# transactions* t+e tota& a-ount o! a&& a,,itiona& pai,3in capita& accounts at "ece-(er 31* 2''@ is a. 6 ;71*?'' (. 6 ;@'*'''

4/

Pa& Corp.As 2''1 ,ivi,en, revenue inc&u,e, on&$ part o! t+e ,ivi,en,s receive, !ro- its I-a Corp. invest-ent. Pa& Corp. +as an invest-ent in I-a Corp. t+at it inten,s to +o&, in,e!inite&$. T+e (a&ance o! t+e ,ivi,en, re,uce, Pa&As carr$ing a-ount !or

c. 6 7';*)'' ,. 6 72@*?''

9/

Ren!ro Corporation starte, (usiness in 1777 ($ issuing 2''*''' s+ares o! 62' par co--on stoc# !or 63? eac+. In 2'')* 2'*''' o! t+ese s+ares 0ere purc+ase, !or 6<2 per s+are ($ Ren!ro Corporation an, +e&, as treasur$ stoc#. On =une 1<* 2'';* t+ese 2'*''' s+ares 0ere e1c+ange, !or a piece o! propert$ t+at +a, an assesse, va&ue o! 6;1'*'''. Ren!roAs stoc# is active&$ tra,e, an, +a, a -ar#et price o! 6?' on =une 1<* 2'';. T+e cost -et+o, is use, to account !or treasur$ stoc#. T+e a-ount o! pai,3in capita& !ro- treasur$ stoc# transactions resu&ting !ro- t+e a(ove events 0ou&, (e a. (. c. ,. 6 6 6 6 ;''*''' );'*''' 37'*''' 1?'*'''

,./

Ba,en Corporation o0ne, 2'*''' s+ares o! Torre$ CorporationAs 6< par va&ue co--on stoc#. T+ese s+ares 0ere purc+ase, in 2'') !or 61;'*'''. On 5epte-(er 1<* 2'';* Ba,en ,ec&are, a propert$ ,ivi,en, o! one s+are o! Torre$ !or ever$ ten s+ares o! Ba,en +e&, ($ a stoc#+o&,er. On t+at ,ate* 0+en t+e -ar#et price o! Torre$ 0as 61) per s+are* t+ere 0ere 1;'*''' s+ares o! Ba,en outstan,ing. /+at :ET re,uction in retaine, earnings 0ou&, resu&t !ro- t+is propert$ ,ivi,en,D a. (. c. ,. 6 6 6 6 7'*''' 2<2*''' @2*''' 1?2*'''

,2/

On "ece-(er 31* 2''?* t+e stoc#+o&,ersG e2uit$ section o! C&ar#* Inc.* 0as as !o&&o0s Co--on stoc#* par va&ue 61'H aut+ori>e, 3'*''' s+aresH issue, an, outstan,ing 7*''' s+ares A,,itiona& pai,3in capita& Retaine, earnings Tota& stoc#+o&,ersG e2uit$

6 7'*''' 11?*''' 1@)*''' 6 3;'*'''

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/rig+t* Inc. +a, net inco-e !or 2''@ o! 62*12'*''' an, earnings per s+are on co--on stoc# o! 6<. Inc&u,e, in t+e net inco-e 0as 63''*''' o! (on, interest e1pense re&ate, to its &ong3ter- ,e(t. T+e inco-e ta1 rate !or 2''@ 0as 3'8. "ivi,en,s on pre!erre, stoc# 0ere 6)''*'''. T+e pa$out ratio on co--on stoc# 0as 2<8. /+at 0ere t+e ,ivi,en,s on co--on stoc# in 2''@D a. (. c. ,. 6 6 6 6 )3'*''' <3'*''' );2*<'' ?)<*'''

On Marc+ 31* 2''@* C&ar# ,ec&are, a 1'8 stoc# ,ivi,en,* an, accor,ing&$ 7'' a,,itiona& s+ares 0ere issue,* 0+en t+e !air -ar#et va&ue o! t+e stoc# 0as 61; per s+are. %or t+e t+ree -ont+s en,e, Marc+ 31* 2''@* C&ar# sustaine, a net &oss o! 632*'''. T+e (a&ance o! C&ar#As retaine, earnings as o! Marc+ 31* 2''@* s+ou&, (e a. (. c. ,. 6 6 6 6 12<*;'' 133*''' 13)*;'' 1)2*'''

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On =anuar$ 1* 2''@* Car&* Inc.* ,ec&are, a 1'8 stoc# ,ivi,en, on its co--on stoc# 0+en t+e -ar#et va&ue o! t+e co--on stoc# 0as 62' per s+are. 5toc#+o&,ersG e2uit$ (e!ore t+e stoc# ,ivi,en, 0as ,ec&are, consiste, o! Co--on stoc#* 61' par va&ue* aut+ori>e, 2''*''' s+aresH issue, an, outstan,ing 12'*''' s+ares A,,itiona& pai,3in capita& on co--on stoc# Retaine, earnings Tota& stoc#+o&,ersG e2uit$ 6 1*2''*'' ' 1<'*''' @''*''' 6 2*'<'*'' '

,2/

To-&inson* Inc. +as outstan,ing 3''*''' s+ares o! 62 par co--on stoc# an, ?'*''' s+ares o! no3par ;8 pre!erre, stoc# 0it+ a state, va&ue o! 6<. T+e pre!erre, stoc# is cu-u&ative an, participating. "ivi,en,s +ave (een pai, in ever$ $ear e1cept t+e past t0o $ears an, t+e current $ear. I! 61;3*''' 0i&& (e ,istri(ute,* +o0 -uc+ 0i&& t+e co--on stoc#+o&,ers receiveD a. (. c. ,. 6111*''' 673*''' 67'*''' 6);*'''

/+at 0as t+e e!!ect on Car&As retaine, earnings as a resu&t o! t+e a(ove transactionD a. (. c. ,. 6 6 6 6 12'*''' 2''*''' 2)'*''' )''*''' ,ecrease ,ecrease ,ecrease ,ecrease

,0/

A corporation ,ec&are, a ,ivi,en,* a portion o! 0+ic+ 0as &i2ui,ating. Eo0 0ou&, t+is ,istri(ution a!!ect eac+ o! t+e !o&&o0ingD A,,itiona& Pai,3in Capita& "ecrease "ecrease :o e!!ect :o e!!ect Retaine, Earnings :o e!!ect "ecrease "ecrease :o e!!ect

,. 6 2).''

a . ( . c . , .

9se t+e !o&&o0ing in!or-ation !or 2uestions 1? an, 1@. /inger Corporation +a, t+e !o&&o0ing in!or-ation in its !inancia& state-ents !or t+e $ear en,e, 2''@ an, 2''; Cas+ "ivi,en,s !or t+e $ear 2''; :et Inco-e !or t+e $ear en,e, 2''; Mar#et price o! stoc#* 12I31I'; Co--on stoc#+o&,ersA e2uit$* 12I31I'@ Co--on stoc#+o&,ersA e2uit$* 12I31I'; Outstan,ing s+ares* 12I31I'; Pre!erre, ,ivi,en,s !or t+e $ear 2''; 6 1<*''' 12)*''' 2) 2*2''*'' ' 2*)''*'' ' 12'*''' 3'*'''

,3/

/+at is t+e pa$out ratio !or /inger Corporation !or t+e $ear en,e, 2'';D a. (. c. ,. 12.18 1?.'8 3?.38 )1.38

,4/

/+at is t+e (oo# va&ue per s+are !or /inger Corporation !or t+e $ear en,e, 2'';D a. 6 17.1@ (. 6 2'.'' c. 6 1'.)3

"imulation6Pro7lems 8 Answer All )uestions ("how all wor! where applica7le)

1. Indicate the principal effects of a stock dividend versus a stock split as they affect the issuing corporation. Respond in the spaces as follows: "C" for change (A on scantron) "!C" for no change (" on #cantron). $%a&ple: $nter as either A or " (so '1( and '1) are for #tock *ividend and #tock #plit+ respectively. ,ou should $nter either a -A. or -". under each colu&n+ which Corresponds to the scantron ite&. '1( is for #tock *ividend and '1) is for #tock #plit. $ach /lank needs an -A. or -". co&pleted on the scantron #tock *ividend 1( and 1). !u&/er of #hares 0utstanding 23 and 21. 4ar 5alue per #hare 22 and 26. 7otal 4ar 0utstanding 28 and 29. Retained $arnings 2: and 2;. 7otal #tockholders< $=uity 2( and 2). Co&position of #tockholders< $=uity 1111111111 1111111111 1111111111 1111111111 1111111111 1111111111 #tock #plit 1111111111 1111111111 1111111111 1111111111 1111111111 1111111111

2. Stockholders Equity Indicate the effect of each of the following transactions on total stockholders< e=uity /y placing an ">" in the appropriate colu&n. Place your X on your scantron as either an A, B or C+ whether you think that the ite& increases (A)+ decreases (") or has no effect (C) (enter only one option for $AC? transaction). A Increase 63. 7reasury stock is resold at less than cost. 61. 0perating inco&e for the period. 62. Retire&ent of /onds paya/le at less than /ook value. 66. *eclaration of a stock dividend. 68. Ac=uisition of &achinery for co&&on stock. 69. Conversion of preferred stock into co&&on stock. 6:. !ot declaring a dividend on non@cu&ulative preferred stock. 1111111111 1111111111 1111111111 1111111111 1111111111 1111111111 1111111111 " *ecrease 1111111111 1111111111 1111111111 1111111111 1111111111 1111111111 1111111111 C !o $ffect 1111111 1111111 1111111 1111111 1111111 1111111 1111111

Investments Indicate the effect of each of the following transactions on investorAs invest&ent account /y placing an ">" in the appropriate colu&n. Place your X on your scantron as either an A, B or C+ whether you think that the ite& is held@to@&aturity (A)+ trading (") or availa/le@for@sale (C) (enter only one option for $AC? transaction). Ca&p Co. purchased various securities during 2331 to /e classified as held@to@&aturity securities+ trading securities+ or availa/le@for@sale securities. Ite&s 82 through 89 descri/e various securities purchased /y Ca&p. Bor each ite&+ select fro& the following list the appropriate category for each security. A category &ay /e used once+ &ore than once+ or not at all. Categories A. ?eld@to@&aturity ". 7rading C. Availa/le@for@#ale 6;. *e/t securities /ought and held for the purpose of selling in the near ter&. C# 7reasury /onds that Ca&p has /oth the positive intent and the a/ility to hold to &aturity. D6 &illion de/t security /ought and held for the purpose of selling in three years to finance pay&ent of Ca&pAs D2 &illion long@ter& note paya/le when it &atures. Converti/le preferred stock that Ca&p does not intend to sell in the near ter&. 11111111

6(.

11111111

6).

11111111

83.

11111111

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