FINAL EXAMINATION

ACCOUNTING 5121
Fall 2011

__________________
Name

Two Problems worth 30 POINTS EACH

One Essay worth 40 POINTS

 Problem 1 [30 points]

Marlin Company issued a 15-year $2,000,000 bond on July 30, 2011. The contract
rate of interest on the bonds was 8%. The bonds were issued when the market rate
of interest was 16%. Marlin is a calendar year entity.

a). What is the amount of interest the company will pay in any one year?

b). What will be the selling price of the bonds [in other words how much cash will
the company receive]?

c). What is the amount of discount or premium to be recorded by the company on

the issuing date?

d). What is the amount of interest incurred by the company as of December 31,
2011? Assume Marlin Company has adopted a straight line amortization of the
discount or premium?

e). What would be the selling price of the bonds if the current market rate of
interest was 4% instead of 16%?
 Problem 2 [30 Points]
West Valley Corporation had the following stockholders’ equity information from
the balance sheet for year ending 12/31/2011.

Preferred Stock - $100 par value, 10% cumulative, 10,000 shares authorized, 4,000
issued

Treasury Stock on Preferred $100 par value, 10% cumulative 1000 shares

Common Stock - $20 par value, 10,000 shares authorized, 6,000 shares issued and
outstanding

Retained Earnings $2,000,000

a). If dividends were paid in the amount of $200,000 how much would the preferred
shareholders and common stockholders receive assuming no dividends paid in the
previous three years?

b). Assuming the company has been in the arrears for two years, how much in
dividends would the preferred shareholders and common shareholders receive if the
company paid $90,000 in dividends this current year?

c). What would be the impact if the company announced a 2-1 stock split on
preferred stock?

d). The company has announced a 10% stock dividend on the common stock when
the market value of each common share was $20. Describe the impact to the
company of such an announcement.

e). Assume West Valley sold all of their treasury shares for $1,000,000. What
would be the impact on the equity portion of the financial statement?
 Problem 3 [Essay] 40 Points

Would You Want to Work for CitiGroup?

http://www.citigroup.com/citi/fin/data/q1103c.pdf?
ieNocache=698

Explain your answer fully – be sure to utilize the

quarterly {10-Q} provided.