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(TCO C) Redstone Company spent $190,000 developing a new process, $45,000 in legal fees to obtain a patent, and $91,000 to market the process that was patented. How should these costs be accounted for in the year they are incurred? (Points: 20) The $190,000 should be expensed when incurred as research and development costs. The $91,000 is expensed as selling and promotion costs when incurred. The $45,000 legal fees to obtain a patent should be capitalized and amortized over the useful life or legal life of the patent, whichever is shorter. 2. (TCO D) Total payroll of Watson Co. was $920,000, of which $160,000 represented amounts paid in excess of $100,000 to certain employees. The amount paid to employees in excess of $7,000 was $720,000. Income taxes withheld were $225,000. The state unemployment tax is 1.2%, the federal unemployment tax is .8%, and the F.I.C.A. tax is 7.65% on an employee’s wages to $100,000 and 1.45% in excess of $100,000. (a) Prepare the journal entry for the wages and salaries paid. (b) Prepare the entry to record the employer payroll taxes. (a) Wages and Salaries Expense 920,000 Withholding Taxes Payable FICA Taxes Payable [($920,000 – $160,000) × 7.65%] + ($160,000 × 1.45%) Cash Payroll Tax Expense 64,460 FICA Taxes Payable ($760,000 × 7.65%) + ($160,000 × 1.45%) Federal Unemployment Tax Payable [($920,000 – $720,000) × .8%] State Unemployment Tax Payable ($200,000 × 1.2%)

225,000 60,460 634,540

(b)

60,460

1,600 2,400

3. (TCO D). Prepare journal entries to record the following retirement. (Show computations and round to the nearest dollar.) The December 31, 2010 balance sheet of Wolfe Co. included the following items: 7.5% bonds payable due December 31, 2018 $1,200,000 Unamortized discount on bonds payable 48,000 The bonds were issued on December 31, 2008 at 95, with interest payable on June 30 and December 31. (Use straight-line amortization.) On April 1, 2011, Wolfe retired $240,000 of these bonds at 101 plus accrued interest. (Points: 35) Interest Expense 4,800 Cash ($240,000 x 7.5% x 3/12) Discount on Bonds Payable ($48,000 x 1/5 x 1/8 x 3/12) Bonds Payable 240,000 Loss on Redemption of Bonds 11,700 Discount on Bonds Payable [($48,000 x 1/5) – 300] Cash

4,500 300

9,300 242,400

4. (TCO E) Parker Corporation has issued 2,000 shares of common stock and 400 shares of preferred stock for a lump sum of $72,000 cash. Instructions (a) Give the entry for the issuance assuming the par value of the common was $5 and the market value $30, and the par value of the preferred was $40 and the market value $50. (Each valuation is on a per share basis and there are ready markets for each stock.) (b) Give the entry for the issuance assuming the same facts as (a) above except the preferred stock has no ready market value, and the common stock has a market value of $25 per share. (Points: 30) (a) Cash 72,000 Common Stock (2,000*$5) Paid-in Capital in Excess of Par - Common ($54,000 - $10,000) Preferred Stock (400*$40) Paid-in Capital in Excess of Par – Preferred ($20,000 - $18,000)

10,000 44,000 16,000 2,000

Common stock $30 x 2,000 shares= $60,000 Preferred stock $50 x 400 shares = $20,000 Total market value= $80,000

6% $100 par.000/ ($1.000 x 12% x 1/12) Interest Revenue Cash Loss on Sale of Securities Available-for Sale Securities [$422.000 Common $ — 36.000 5.200.000] 6.000*$25) – (2.000 3.000 plus accrued interest.000= $54. Preferred $24. 2016.000 $60. Kirmer Corp.000 shares of common stock outstanding. (TCO A) At December 31.000 Total stockholders’ equity $1. 60.000 $54.000 Total $24. had 1. $4000 shares outstanding $400. 2010. (b) The bonds are sold on August 1.500 4.500 425.000) = $1.800 plus accrued interest.000 $114.800 18.200/68) x 15] 422.200.000 Retained earnings $114.000 Instructions: Assuming that all of the company’s retained earnings are to be paid out in dividends on 12/31/11 and that preferred dividends were last paid on 12/31/09.000 60.314. The bonds mature on January 1. Prepare all entries required to properly record the sale.000.000 Preferred stock 20/80 x $72.000 + 750. (Assume bonds are available for sale.000 12.000) Current year's dividends Participating dividend (3%) [($30. show how much the preferred and common stockholders should receive if the preferred stock is cumulative and fully participating.000 ÷ $1.000 shares outstanding $600. Sager had 450.000 cash dividends on the common stock and $400.000= $18. Sager Co.000 of 12% bonds.400.000 6. 2010.000 30. for $422. 2011 for $425. (Points: 25) $3. 2011: Preferred stock.000*$5) Preferred Stock Paid-in Capital in Excess of Par – Preferred 10.000 shares of common stock. purchased $450.000 cash dividends on the preferred stock.000) x $400.800 428.000 shares of preferred stock which were convertible into 750.800 400 400 4. During 2011.000 16. In addition.74 7.000 Common Stock Paid-in Capital in Excess of Par – Common (2.000 Common Stock-$10 par. What would be the diluted earnings per share for 2011 (rounded to the nearest penny)? Please show all computations. 2010.200/ 68) Interest Revenue Cash ($450.Common stock 60/80 x $72.) Instructions (a) Prepare the entry for May 1.000 Dividends in arrears (6% x $400.800 (b) .000 (b) Cash 72. interest payable on January 1 and July 1.000 and the income tax rate was 40%.000 Paid-in capital in excess of par $200. (Points: 30) (a) Available-for-Sale Securities Interest Revenue ($450.400.000 18. Net income for 2011 was $3.000 40.000 Total book value= $72. (TCO B) On May 1.800+ ($27.000 440.000 x 12% x 4/12) Cash Available-for-Sale Securities ($27. Sager paid $600. (TCO F) The stockholder’s equity section of Lemay Corp shows the following on Dec 31.000 24. Amortization is recorded when interest is received by the straight-line method (by months and rounded to the nearest dollar).