Midterm 1 Review Packet Spring 2023

Note: These additional questions are not intended to cover all the topics and material covered on Midterm 1. All the material covered in the course note packets, review problems, and cases related to Chapters 13, 14, and 15 could be included on Midterm 1. I recommend that you study all the relevant material and then complete these questions as one of your final study steps. Complete these questions completely without notes, and then check your answers - the answers are at the end of this document.

1.   On April 1, 2015, YGJ Corporation issues 10-year bonds, dated January 1, 2015. The par value is $1,000,000 and the annual interest rate is 5%, payable semi-annually on January  1 and July 1. Assuming the bonds are issued at 103, what amount does YGZ Corporation receive on April 1?

a.   $1,000,000

b.   $1,030,000

c.   $1,017,500

d.   $1,042,500

2.   The balance sheet of Hoosier Hoops Corporation as of December 31, 2020, included

12.25% bonds having a face amount of $90 million. The bonds had been issued in 2013 and had a remaining discount of $3 million at December 31, 2020. On January 1, 2021, Hoosier Hoops called the bonds before their scheduled maturity at the call price of 102. What is the gain or loss that Hoosier Hoops will recognize?

a.   $4,800,000 loss

b.   $4,800,000 gain

c.   $1,800,000 loss

d.   $3,000,000 gain

3.   B-Town Books issues a bond with an interest rate of 10% while the market interest rate is 8%. This bond will be issued at a discount.

a.   True

b.   False

Use the following information to answer 4 and 5

4.   Bloomington Blooms issued $100,000 of 6% bonds on January 1, 2014 due on January 1, 2019. The interest is paid semiannually July 1 and January 1. The market rate is 9%.

What is the discount or premium recorded when the bond proceeds are recognized?

a.   38,506 premium

b.   11,669 discount

c.   11,869 discount

d.   7,823 premium

5.   What is Bloomington Blooms’ interest expense recorded on July 1, 2014?

a.   $3,000

b.   $3,966

c.   $7,931

d.   $4,500

Use the following information to answer 6, 7, and 8

6.   Sushi Bar issued 10,000 shares of $1 par value stock for $30 per share. The following

year, they acquired 2,000 shares at $35 per share. The reacquisition will include which of the following in the journal entry?

a.   Debit Common Stock $2,000

b.   Debit APIC – T/S for $10,000

c.   Debit Treasury Stock for $70,000

d.   Debit Cash for $300,000

7.   Sushi Bar sold 1,000 of the reacquired shares for $37 per share. The journal entry to record this will include which of the following?

a.   Credit Treasury Stock $35,000

b.   Credit Treasury Stock $37,000

c.   Credit Loss $2,000

d.   Credit Common Stock $1,000

8.   Sushi Bar sells the remaining 1,000 shares for $30 per share. The journal entry to record this will include which of the following?

a.   Credit Treasury Stock $30,000

b.   Debit Retained Earnings $7,000

c.   Debit Retained Earnings $3,000

d.   Credit APIC – T/S $7,000

9.   Cookie Castle has 2,000 outstanding shares of $10 par value common stock and retained  earnings of $700,000. They declare a 10% stock dividend and at that time the fair value of the stock is $200 per share. How will this dividend affect their paid in capital in excess of par account?

a.   No effect

b.   Increase it by $40,000

c.   Increase it by $38,000

d.   Increase it by $380,000

10.  KSB Corporation issued 100 shares of $10 par value preferred stock and 500 shares of

$1 common stock. The lump sum received was $40,000. The common stock has a market value of $25 per share, and the value of the preferred stock is unknown. By what amount  will paid-in capital in excess of par - preferred increase?

a.   $26,500

b.   $11,500

c.   $27,500

d.   $39,000

11. Makers Corp. has 4,000 $1,000 bonds outstanding, each convertible into 10 shares of $15 par common stock. The bonds are converted on December 31, 2018 when the unamortized discount is $50,000 and the market price is $60. What is the journal entry to record this conversion?

12. Shoes and Sneakers Inc. issued 1,000 $1,000 bonds at 103. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling in the market at 95  and the warrants had a market value of $55. Using the proportional method to record the issuance of the bonds and warrants, what is the discount recorded related to the bonds?

a.   $24,762

b.   $50,000

c.   $55,000

d.   $26,369

Use the following information to answer 13 and 14

On January 1, 2021, Top Hat Industries had outstanding 640,000 common shares ($1 par) that originally sold for $25 per share, and 8,000 shares of 10% cumulative preferred stock ($100 par), convertible into 80,000 common shares.

On October 1, 2021, Top Hat sold and issued an additional 12,000 shares of common stock at $40. At December 31, 2021,there were 28,000 incentive stock options outstanding, issued in 2020, and exercisable after one year for 28,000 shares of common stock at an exercise price of $30. The market price of the common stock at year-end was $48. During the year, the price of  the common shares had averaged $40.

Net income was $780,000. The tax rate for the year was 25%.

13. What is basic EPS?

14. What is diluted EPS?

15. Based on the information below, what is the number of weighted average shares outstanding to be used in the basic EPS calculation?

On December 31, 2020, Berclair Inc. had 380 million shares of common stock and 5 million shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March 1, 2021, Berclair purchased 24 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2021. Four million treasury shares were sold on October 1. Net income for the year ended December 31, 2021, was $600 million.

16. Based on the information below, what is the Diluted EPS?

On December 31, 2020, Berclair Inc. had 200 million shares of common stock and 3 million  shares of 9%, $100 par value cumulative preferred stock issued and outstanding. On March   1, 2021, Berclair purchased 24 million shares of its common stock as treasury stock. Berclair issued a 5% common stock dividend on July 1, 2021. Four million treasury shares were sold  on October 1. Net income for the year ended December 31, 2021, was $150 million. The income tax rate is 25%.

Also outstanding at December 31 were incentive stock options granted to key executives on September 13, 2016. The options are exercisable as of September 13, 2020, for 30 million common shares at an exercise price of $56 per share. During 2021, the market price of the common shares averaged $70 per share.

In 2017, $50 million of 8% bonds, convertible into 6 million common shares, were issued at face value.