ACCT 301 WEEK 4 Accounting Assignment 4

Prepare journal entries to record each of the following independent stock issue situations.

(a)

Sherri Hui Corporation issued 100,000 shares of $1 par value common stock.  The issue price was $30 per share.

(b)

Ariana Corporation issued 50,000 shares of no par common stock for $10 per share.

(c)

Laser Golf issued 40,000 shares of $100 par value preferred stock.  The issue price was $102 per share.

(d)

Charleston Industries issued 5,000 shares of $5 par value common stock for land with a fair value of $75,000.

(a)

Year

Annual Expense

Accumulated
 Depreciation at End of Year

Annual
 Expense Calculation

X3

X4

X5

X6

X7

(b)

 Property, Plant & Equipment (20X5)

 Equipment

 Less:  Accumulated depreciation

(c)

GENERAL JOURNAL

Date

Accounts

Debit

Credit

1-Jan

To record the purchase of press

31-Dec

20X3

To record 20X3 depreciation

31-Dec

20X4

To record 20X4 depreciation

31-Dec

20X5

To record 20X5 depreciation

31-Dec

20X6

To record 20X6 depreciation

31-Dec

20X7

To record 20X7 depreciation

31-Dec

20X7

To record disposal of asset

On January 1, 20X6, Outback Air purchased a new engine for one of its airplanes used to transport adventurers to remote regions of western Australia.  The engine cost $750,000 and has a service life of 10,000 flight hours.  Regulations require careful records of usage, and the engines must be replaced or rebuilt at the end of the 10,000 hour service period.  Outback simply chooses to sell its used engines and acquire new ones.  Used engines are expected to be resold for 1/3 of their original cost.

Outback uses the units-of-output depreciation method.

(a)

Assuming that the engine was used as follows, prepare a schedule showing annual depreciation expense, accumulated depreciation, and related calculations for each year.

20X6   1,500 hours
20X7   4,000 hours
20X8   3,000 hours
20X9   1,500 hours

(b)

Show how the asset and related accumulated depreciation would appear on a balance sheet at December 31, 20X7.

(c)

Prepare journal entries to record the asset's acquisition, annual depreciation for each year, and the asset's eventual sale for $250,000.

(a)

Year

Annual Expense

Accumulated
 Depreciation at End of Year

Annual
 Expense Calculation

X6

X7

X8

X9

(b)

 Property, Plant & Equipment (20X7)

 Aircraft engine

 Less:  Accumulated depreciation

(c)

GENERAL JOURNAL  

Date

Accounts

Debit

Credit

1-Jan

To record the purchase of engine

31-Dec

20X6

To record 20X6 depreciation

31-Dec

20X7

To record 20X7depreciation

31-Dec

20X8

To record 20X8 depreciation

31-Dec

20X9

To record 20X9 depreciation

31-Dec

20X9

To record disposal of asset

Ng's Shrimp Company owns a fishing vessel that originally cost $250,000, with a 20-year life, and no anticipated salvage value.   Ng uses the straight-line depreciation method.  Review the following three independent cases, and prepare the journal entry to reflect the disposition of the boat in each case.

Case 1

After 8 years of ownership, the boat was taken by a storm.

Case 2

After 12 years of ownership, the boat was sold for $175,000.

Case 3

After 15 years of ownership, the boat was sold for $60,000.

GENERAL JOURNAL  

Date

Accounts

Debit

Credit

Case 1

Case 2

Case 3

SFCC Corporation has 8 employees.  Information about the October payroll follows:

Name

Hours Worked

Pay Rate

Federal Income
Tax Withheld

Breschi, K

95

$12 per hour

$200

Carballo, P

n/a

$3,000 per month

$850

Dangelo, J

180

$14 per hour

$625

Gaines, T

n/a

$4,500 per month

$1,100

Goseco, M

n/a

$10,100 per month

$3,575

Skolnick, J

180

$12 per hour

$480

Williams, R

172

$9 per hour

$140

Wong, O

195

$16 per hour

$800

Additional information is as follows:

SFCC is in a state without an income tax.  Employees' federal income tax withholdings depend on various factors, and the amounts are as indicated in the above table.

No employees worked overtime, with the exception of  Oscar Wong, who worked 15 hours of overtime.  Overtime is paid at 150% of the normal hourly rate.

Assume that gross pay is subject to social security taxes at a 6.5% rate, on an annual base of $100,000.  Assume that Medicare/Medicaid taxes are 1.5% of gross earnings.  These taxes are matched by the employer.  Only Marcia Goseco had earned more than $90,000 during the months leading up to October.  She had earned $90,900 during that time period.

SFCC has 100% participation in a $10 per month employee charitable contribution program.  These contributions are withheld from monthly pay.

SFCC pays for workers' compensation insurance at a 2% of gross pay rate.  None of this cost is paid by the employee.

SFCC provides employees with a group health care plan; however, the cost is fully paid by employees.  The rate is $250 per month, per employee.

SFCC's payroll is subject to federal (0.5%) and state (1.5%) unemployment taxes on each employee's gross pay, up to $8,000 per year.  All employees had earned in excess of $8,000 in the months leading up to October, with the exception of Karen Breschi.  Karen was first employed during the month of October.

SFCC contributes 5% of gross pay to an employee retirement program.  Employees do not contribute to this plan.

(a)

Complete the payroll schedule on the accompanying blank worksheet.

(b)

Prepare journal entries for SFCC's payroll and the related payroll expenses.

(a)

Deductions

Name

Gross Earnings

Federal Income Tax

Social Security Tax

Medicare/
Medicaid

Charitable

Health Insurance

Net Earnings

Breschi, K

Carballo, P

Dangelo, J

Gaines, T

Goseco, M

Skolnick, J

Williams, R

Wong, O

Totals

 $         -  

 $          -  

 $          -  

 $          -  

 $          -  

 $          -  

 $           -  

(b)

GENERAL JOURNAL  

Date

Accounts

Debit

Credit

31-Oct

To record payroll

31-Oct

To record employer portion of payroll taxes and benefits

Prepare journal entries to record each of the following independent stock issue situations.

(a)

Sherri Hui Corporation issued 100,000 shares of $1 par value common stock.  The issue price was $30 per share.

(b)

Ariana Corporation issued 50,000 shares of no par common stock for $10 per share.

(c)

Laser Golf issued 40,000 shares of $100 par value preferred stock.  The issue price was $102 per share.

(d)

Charleston Industries issued 5,000 shares of $5 par value common stock for land with a fair value of $75,000.

GENERAL JOURNAL    

Date

Accounts

Debit

Credit

(a)

To record issue of 100,000 shares of $1 par value common stock at $30 per share

(b)

To record issue of 50,000 shares of no par value common stock at $10 per share

(c)

To record issue of 40,000 shares of $100 par value preferred stock at $102 per share

(d)

To record issue of 5,000 shares of $5 par value common stock for land with a fair value of $75,000

Krull Corporation presented the following selected information.  The company has a calendar year end.

Before considering the effects of dividends, if any, Krull's net income for 20X7 was $2,500,000.

Before considering the effects of dividends, if any, Krull's net income for 20X8 was $3,000,000.

Krull declared $750,000 of dividends on November 15, 20X7.  The date of record was January 15, 20X8.  The dividends were paid on February 1, 20X8.

Stockholders' equity, at January 1, 20X7, was $5,000,000.  No transactions impacted stockholders' equity throughout 20X7 and 20X8, other than the impact of earnings and dividends on retained earnings.

(a)

Prepare journal entries, if needed, to reflect the dividend declaration, the date of record, and the date of payment.

(b)

How much was net income for 20X7 and 20X8?

(c)

How much was total equity at the end of 20X7 and 20X8?

(d)

Is total "working capital" reduced on the date of declaration, date of record, and/or date of payment?

(a)

GENERAL JOURNAL 

Date

Accounts

Debit

Credit

Declare

Date

Record

Date

Pay

Date

(b)

(c)

(d)

Kenya Corporation had an equity structure that consisted of $1 par value common stock,  $3,500,000; paid-in capital in excess of par, $17,500,000; and retained earnings, $22,700,000.

Transaction A

Believing that its share price was depressed due to general market conditions, Kenya's board of directors authorized the reacquisition of 250,000 shares of common stock.  These treasury shares were purchased at $10 per share.

Transaction B

Subsequent to Transaction A, the stock price increased to $17 per share, and half of the treasury shares were sold in the open market.

Transaction C

Subsequent to Transaction B, Kenya experienced business difficulties that necessitated it selling the remaining treasury shares to raise additional cash.  The shares were sold for $6 per share.

(a)

Assuming that all 3,500,000 shares of Kenya were issued at the same time and at the same price per share, what was the original issue price?  How does this compare to the price paid in Transaction A, and is it rational for a company to pay more to buy back shares than it originally received upon the initial issuance?

(b)

Prepare an appropriate journal entry to record Transaction A.  Kenya records treasury shares at cost.

(c)

Prepare an appropriate journal entry for Transaction B.

(d)

Prepare an appropriate journal entry for Transaction C.

(e)

 Is there any income statement impact from these transactions?  What is the impact on total stockholders' equity from each of the three transactions?

(a)

(b)(c)(d)

GENERAL JOURNAL  

Date

Accounts

Debit

Credit

A

To record acquisition of 250,000 treasury shares at $10 per share

B

To record reissue of 125,000 treasury shares at $17 per share

C

To record reissue of 125,000 treasury shares at $6 per share

(e)