ACC 3003- Final Exam- Revision

CLO 1 :Equity transactions

1.On December 31st, 2019 the stockholders Equity section of Abrar Company appears as
follows, after one year of operations:

Common Stock - $10 par value, 5,000,000 shares authorized, $720,000

72,000 shares issued and outstanding
Paid in capital in excess of par value, common stock ($3 per share) 216,000
Preferred Stock - $ 100 par value, 1,000,000 shares authorized, 500,000
5,000 shares issued.
Paid in capital in excess of par value, preferred stock 315,000
Retained Earnings 864,000
Total Stockholders’ Equity $2,615,000

The following transactions took place during 2018:

1. The company issued 5,000 shares common stock for $90,000 cash.
2. The company issued 1,250 shares preferred stock for $250,000 cash. Cost of issuance
was $ 8,000.
3. The company issued 15,000 shares common stock in exchange for land. The land has an
appraised value of $195,000 and the shares are trading on a public stock exchange for
$15 per share.
4. The company reacquired for retirement 2,000 shares of common stock that it had
originally issued in 2017 for a price of $12 per share.
5. Purchased for treasury 5,000 shares of its own common stock for $22 per share.
6. Sold 2,000 treasury shares for $23 per share.
7. Sold 1,000 treasury shares for $ 21 per share.

Required: Prepare journal entries for the above transactions.

Solution

Date Account Dr. Cr.

2. In 2018, Borland Semiconductors entered into the transactions described below. In
2015, Borland had issued 170 million shares of its $1 par common stock at $34 per
share.

Required:
Assuming that Borland retires shares it reacquires, record the appropriate journal entry
for each of the following transactions:

1. On January 2, 2018, Borland reacquired 10 million shares at $32.50 per share.

2. On March 3, 2018, Borland reacquired 10 million shares at $36 per share.
3. On August 13, 2018, Borland sold 1 million shares at $42 per share.
4. On December 15, 2018, Borland sold 2 million shares at $36 per share.

3. In 2018, Western Transport Company entered into the treasury stock transactions
described below. In 2016, Western Transport had issued 140 million shares of its $1 par
common stock at $17 per share.

Required:
Prepare the appropriate journal entry for each of the following transactions:

1. On January 23, 2018, Western Transport reacquired 10 million shares at $20 per
share.
2. On September 3, 2018, Western Transport sold 1 million treasury shares at $21
per share.
3. On November 4, 2018, Western Transport sold 1 million treasury shares at $18
per share.
CLO 2: Partnership income distribution
1. John and Jones started a partnership on Jan 1, 2019. John invested $180,000 and Jones
invested $120,000. The partnership made a profit of $60,000. The partners are paid salary of
$12,000 and $8,000 respectively. Each partner gets 5% interest on their initial investment. All
profits and losses are shared between John and Jones in the ratio 7:3 respectively.
a. Prepare a schedule of income distribution.
b. Prepare the journal entry for the distribution of net profit/loss
Solution

b. Journal Entries

Date Name of the account Debit Credit

2.John and Jones started a partnership on Jan 1, 2019. John invested $180,000 and Jones
invested $120,000. The partnership made a loss of $40,000. The partners are paid salary of
$12,000 and $6,000 respectively. Each partner gets 5% interest on their initial investment. All
profits and losses are shared between John and Jones in the ratio 7:3 respectively.
a. Prepare a schedule of income distribution.
b. Prepare the journal entry for the distribution of net profit/loss
Solution

Date Name of the account Debit Credit

3. A partnership begins its first year with the following capital balances:
 Alfred, Capital $ 50,000
Bernard, Capital 60,000
Collins, Capital 70,000
The articles of partnership stipulate that profits and losses be assigned in the following manner:
Each partner is allocated interest equal to 5 percent of the beginning capital balance.
Bernard is allocated compensation of $18,000 per year.
Any remaining profits and losses are allocated on a 3:3:4 basis, respectively.
Each partner is allowed to withdraw up to $5,000 cash per year.
The net income is $60,000 and that each partner withdraws the maximum amount allowed,
what is the balance in Collins capital account at the end of that year?
Required
a. Prepare a schedule of income distribution.
b. Prepare statement of capital
CLO 2:Partnership Liquidation

1.A partnership has the following balance sheet prior to liquidation:

Cash $ 66,000 Liabilities $ 100,000
Other assets 200,000 Bana, capital (40%) 48,000
Dana, capital (30%) 58,000
Mena, capital (30%) 60,000
Total $ 266,000 Total $ 266,000
During liquidation, other assets are sold for $160,000, liabilities are paid in full,
and $30,000 in liquidation expenses are paid.
Required:
What amount of cash does each partner receive as a result of this liquidation?
Show all calculations.
Solution
2. A partnership has the following balance sheet prior to liquidation (partners’
profit and loss ratios are in parentheses):
Cash $ 33,000 Liabilities $ 50,000
Other assets 100,000 Playa, capital (40%) 24,000
Bahia, capital (30%) 29,000
Arco, capital (30%) 30,000

Total $133,000 Total $133,000

During liquidation, other assets are sold for $80,000, liabilities are paid in full, and
$15,000 in liquidation expenses are paid. What amount of cash does each partner
receive as a result of this liquidation?

CLO -3: Investment in Debt Held to maturity

1. Richie Corporation acquired as a long-term investment $260 million of 6%
bonds, dated July 1, on July 1, 2018. Company management has the positive
intent and ability to hold the bonds until maturity. The market interest rate (yield)
was 8% for bonds of similar risk and maturity. Richie paid $220 million for the
bonds. The company will receive interest semiannually on June 30 and December
31. As a result of changing market conditions, the fair value of the bonds at
December 31, 2018, was $210 million.

Required:
1. Prepare the journal entry to record Richie’s investment in the bonds on July
1, 2018.

Date Account Dr Cr

2. Prepare the amortization schedule for the bonds up to the December 31st 2019

Amortization Schedule—Discount

3.Prepare the journal entries by Richie to record interest on December 31, 2018, at the
effective (market) rate.
 Date Account Dr Cr

3. At what amount will Richie report its investment in the December 31, 2018, balance
sheet?

4. Suppose Moody’s bond rating agency downgraded the risk rating of the bonds motivating
Richie to sell the investment on January 2, 2019, for $200 million. Prepare the journal entry
to record the sale

Date Account Dr Cr

Debt investment (Available for sale )

2. On January 1, 2016 Global Company purchased $630,000, 6% bonds of Euclid Co. for
$670,000. The bonds were purchased to yield 5% interest (market rate). Interest is payable
semiannually on June 30 and December 31. The bonds mature on December 31 2020.
Global Company uses the effective-interest method to amortize discount or premium. On
December 31 2018 Global Company sold the bonds for $625,000 after receiving interest to
meet its liquidity needs.

Required:
1. Prepare the journal entry to record the purchase of bonds on January It 2016. Assume
that the bonds are classified as available-for-sale.
2. Prepare the amortization schedule for the bonds up till December 31, 2017. Round up
or down to the nearest dollar.
 3. Prepare the necessary journal entries for interest during 2016 and any necessary
adjusting entry assuming that the bonds had a fair value of $ 660,000 on December 31,
2016.
4. Assuming that the fair value of Euclid bonds is $670,500 on December 31, 2017
prepare the necessary adjusting entry for fair value

Solution

Date Debit Credit

2. Amortization Schedule

Date Debit Credit

 Date Debit Credit

CLO -4 :Long-term Contract

1.Butterfly Construction Company uses the percentage-of-completion method of accounting for long-
term construction contracts. During 2018, Butterfly began work on a construction contract that
generates AED 1,500,000 revenue and which is due to be completed in 2020. The accounting records
shows the following at year-end:
2018 2019 2020
Contract costs incurred during the year AED 300,000 AED 480,000 AED 270,000

Estimated costs to complete as of year end 700,000 260,000 -0-

Billings during the year 625,000 375,000 500,000
Cash collections during the year 525,000 475,000 500,000

Required:
a. Calculate the percentage of completion for 2018, 2019 and 2020.
b. Prepare all necessary journal entries for 2018.
c. What amount of gross profit and revenue would be recognized in 2018, 2019 and 2020?
d. What amount of total gross profit will be recognised for the whole contract?
Solution

a.

b.Journal Entries
(To record costs of the project)

Date Account Dr. Cr.

(To record billings on the project)

 Date Account Dr. Cr.

(To record receipt of cash)

Date Account Dr. Cr.

(To recognize revenue earned & gross profit for 2018)

Date Account Dr. Cr.

c. What amount of gross profit and revenue would be recognized in 2018, 2019, 2020 ?

d. What amount of total gross profit will be recognized for the whole contract?
2. Zest Construction Company uses the percentage-of-completion method of accounting for long-term
construction contracts. During 2016, Zest began work on a construction contract that generates AED
3,000,000 revenue and which is due to be completed in 2018. The accounting records shows the
following at year-end:

2016 2017 2018

Contract costs incurred during the year AED 600,000 AED 960,000 AED 540,000

Estimated costs to complete as of year end 1,400,000 520,000 -0-

Billings during the year 1,250,000 750,000 1,000,000
Cash collections during the year 1,050,000 950,000 1,000,000

Required:
a. Calculate the percentage of completion for 2016, 2017 and 2018.
b. Prepare all necessary journal entries for 2016.
c. What amount of gross profit and revenue would be recognized in 2016 , 2017 and 2018?
d. What amount of total gross profit will be recognised for the whole contract?

Required:
a. Calculate the percentage of completion for 2016, 2017 and 2018

b. Prepare all necessary journal entries for 2016.

(To record costs of the project)

Date Account Dr. Cr.

(To record billings on the project)

Date Account Dr. Cr.

(To record receipt of cash)

Date Account Dr. Cr.

(To recognize revenue earned & gross profit for 2016)

Date Account Dr. Cr.

c. What amount of gross profit and revenue would be recognized in 2016, 2017, 2018 ?
d. What amount of total gross profit will be recognised for the whole contract?

CLO -4 : Installment method and cost recovery method

1. On June 1, 2013, the Luttman and Dowd Company sold inventory to the Ushman Corporation
for $400,000. Terms of the sale called for a down payment of $100,000 and four annual
installments of $75,000 due on each June 1, beginning June 1, 2014. Each installment also will
include interest on the unpaid balance applying an appropriate interest rate. The inventory
cost Foster $150,000.
Required: 1. Applying installment sales method compute the amount of gross profit for each
year and prepare journal entries 2013.
 Journal Entries

2. On June 1, 2013, the Luttman and Dowd Company sold inventory to the Ushman Corporation
for $400,000. Terms of the sale called for a down payment of $100,000 and four annual
installments of $75,000 due on each June 1, beginning June 1, 2014. Each installment also will
include interest on the unpaid balance applying an appropriate interest rate. The inventory
cost Foster $150,000.

Required: Applying the cost recovery method compute the amount of gross profit recognized
for all years and prepare journal entries 2013.
Journal Entries

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