B-14.01 Following is a list describing various features of the corporate form of organization. Match each feature with an appropriate descriptive term, and note whether this feature is an advantage or disadvantage of the corporate entity.TERMADVANTAGE OR DISADVANTAGEThe ability of a company to raise capital by issuing shares to the publicPublicly TradedAdvantageThe ability of an existing shareholder to sell shares without corporate approvalThe ability of the government to tax corporate earnings and dividendsPeriodic regulatory filingsThe ability of different individuals to pool resourcesThe inability of creditors to pursue individual shareholdersThe life of the entity can exceed the life of the shareholdersTERMS:Limited LiabilityDouble TaxationPerpetual ExistenceTransferability of OwnershipMutual OwnershipCost of RegulationPublicly Traded &R&"Myriad Web Pro,Bold"&20B-14.01 B-14.01 Worksheet B-14.01 TERMADVANTAGE OR DISADVANTAGEThe ability of a company to raise capital by issuing shares to the publicPublicly TradedAdvantageThe ability of an existing shareholder to sell shares without corporate approvalThe ability of the government to tax corporate earnings and dividendsPeriodic regulatory filingsThe ability of many individuals to pool resourcesThe inability of creditors to pursue individual shareholdersThe life of the entity can exceed the life of the shareholders &L&"Myriad Web Pro,Bold"&12Name: Date: Section: &R&"Myriad Web Pro,Bold"&20B-14.01 B-14.01 B-14.02Evaluate the following list, and decide if each described attribute more likely relates to a common stock or preferred stock issue.CommonPreferredThe stock is described as 6%, cumulative✓The stock includes voting rightsThe stock is last in line in the event of liquidationThe stock is convertibleThe stock ordinarily pays a fixed dividendThe stock may be subject to significant appreciationThe stock has a "call price"The stock has a mandatory redemption date B-14.02 Worksheet B-14.02CommonPreferredThe stock is described as 6%, cumulative✓The stock includes voting rightsThe stock is last in line in the event of liquidationThe stock is convertibleThe stock ordinarily pays a fixed dividendThe stock may be subject to significant appreciationThe stock has a "call price"The stock has a mandatory redemption date B-14.02 B-14.03Prepare 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. B-14.03 Worksheet B-14.03GENERAL JOURNAL  DateAccountsDebitCredit(a)To record issue of 100,000 shares of $1 par value common stock at $30 pe ...

1. B-14.01 Following is a list describing various features of the
corporate form of organization. Match each feature with an
appropriate descriptive term, and note whether this feature is an
advantage or disadvantage of the corporate
entity.TERMADVANTAGE OR DISADVANTAGEThe ability
of a company to raise capital by issuing shares to the
publicPublicly TradedAdvantageThe ability of an existing
shareholder to sell shares without corporate approvalThe ability
of the government to tax corporate earnings and
dividendsPeriodic regulatory filingsThe ability of different
individuals to pool resourcesThe inability of creditors to pursue
individual shareholdersThe life of the entity can exceed the life
of the shareholdersTERMS:Limited LiabilityDouble
TaxationPerpetual ExistenceTransferability of OwnershipMutual
OwnershipCost of RegulationPublicly Traded
&R&"Myriad Web Pro,Bold"&20B-14.01
B-14.01
Worksheet B-14.01 TERMADVANTAGE OR
DISADVANTAGEThe ability of a company to raise capital by
issuing shares to the publicPublicly TradedAdvantageThe
ability of an existing shareholder to sell shares without
corporate approvalThe ability of the government to tax
corporate earnings and dividendsPeriodic regulatory filingsThe
ability of many individuals to pool resourcesThe inability of
creditors to pursue individual shareholdersThe life of the entity
can exceed the life of the shareholders
&L&"Myriad Web Pro,Bold"&12Name:
Date: Section: &R&"Myriad Web
Pro,Bold"&20B-14.01
B-14.01
B-14.02Evaluate the following list, and decide if each
described attribute more likely relates to a common stock or
preferred stock issue.CommonPreferredThe stock is described

2. as 6%, cumulative✓The stock includes voting rightsThe stock is
last in line in the event of liquidationThe stock is
convertibleThe stock ordinarily pays a fixed dividendThe stock
may be subject to significant appreciationThe stock has a "call
price"The stock has a mandatory redemption date
B-14.02
Worksheet B-14.02CommonPreferredThe stock is described as
6%, cumulative✓The stock includes voting rightsThe stock is
last in line in the event of liquidationThe stock is
convertibleThe stock ordinarily pays a fixed dividendThe stock
may be subject to significant appreciationThe stock has a "call
price"The stock has a mandatory redemption date
B-14.02
B-14.03Prepare 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.
B-14.03
Worksheet B-14.03GENERAL
JOURNAL DateAccountsDebitCredit(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
B-14.03
B-14.04Krull 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

3. 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?
B-14.04
Worksheet B-14.04(a)GENERAL
JOURNAL DateAccountsDebitCreditDeclareDateRecordDatePa
yDate(b)(c)
B-14.04
B-14.05Wiggins Corporation has 10,000,000 shares of $1 par
value common stock outstanding. This stock was originally
issued at $7 per share. The company also has 1,000,000 shares
of $50, 4%, cumulative preferred stock outstanding. The
preferred stock was originally issued at par. During 20X5, the
company experienced a significant business interruption and
was unable to pay any dividends. Prior to 20X5, the preferred
shareholders had always received the expected dividend.
During 20X6, the company returned to profitability, and paid
$7,000,000 in dividends.(a)How much is the company's legal
capital, additional paid-in capital, and total paid-in
capital?(b)What accounting/disclosure is needed relating to the
dividends in arrears on the preferred stock as of the end of
20X5 (i.e., should a liability be established)?(c)How would the
20X6 dividends be divided between common and preferred
stock?
B-14.05
Worksheet B-14.05(a)(b)(c)

4. B-14.05
B-14.06Kenya 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?
B-14.06
Worksheet B-14.06(a)(b)(c)(d)GENERAL
JOURNAL DateAccountsDebitCreditATo record acquisition of
250,000 treasury shares at $10 per shareBTo record reissue of
125,000 treasury shares at $17 per shareCTo record reissue of
125,000 treasury shares at $6 per share(e)

5. B-14.06
B-14.07Magic Blade's stock has risen rapidly to $50 per share.
The increase is due to excitement about its new knife that uses a
light beam to slice fruits and vegetables. This process enhances
the final appearance and quality of salads and fruit trays.
The board of directors is considering strategies to divide the
corporate ownership into more shares of stock, and bring about
some reduction in the price per share. They are considering a
stock split, small stock dividend, or large stock dividend. The
board is unsure of the accounting effects of such transactions,
and has requested information about how stockholders' equity
would be impacted.Prior to the contemplated stock transaction,
equity consisted of:Common stock, $2 par, 2,000,000 shares
authorized, 500,000
shares issued and outstanding$ 1,000,000Paid-in capital
in excess of par2,000,000Retained earnings6,000,000Total
stockholders' equity$ 9,000,000(a)Assuming the board were to
declare a 2 for 1 split, how would the revised stockholders'
equity appear?(b)Assuming the board were to declare a 15%
stock dividend, how would the revised stockholders' equity
appear?(c)Assuming the board were to declare a 50% stock
dividend, how would the revised stockholders' equity
appear?(d)Prepare journal entries that would be needed (if
necessary) to record the proposed transactions from part (a),
(b), and (c).
B-14.07
Worksheet B-14.07(a)(d)Common stock,$ -GENERAL
JOURNAL Paid-in capital in excess of par-
DateAccountsDebitCreditRetained earnings-splitTotal
stockholders' equity$ -(b)smallCommon stock,$ -Paid-in
capital in excess of par-Retained earnings-Total stockholders'
equity$ -large(c)Common stock,$ -Paid-in capital in excess
of par-Retained earnings-Total stockholders' equity$ -
B-14.07
Sometimes, you will want to hold a cell reference constant in a

6. formula that is to be copied over and over. When that is the
case, use the "$" sign to hold the cell reference constant. For
instance, if you want to subtract the value in C20 from various
other values elsewhere in the spreadsheet (such as C5, C11, or
C17), be sure to describe the cell reference as $C$20
(otherwise, when you copy the formula to a new cell, its cell
reference will automatically change relative to its prior
location).
B-14.07
B-14.08Pasquali Corporation was incorporated on January 1,
20X4. The following equity-related transactions occurred
during 20X4. Evaluate these activities and prepare a statement
of stockholders' equity for the year ending December 31,
20X4.Issued 4,000,000 shares of $1 par value common stock at
$3 per share.Declared and issued a 5% stock dividend (200,000
shares) at a time when the market value of the stock was $6 per
share.Reacquired 15,000 treasury shares at $5 per
share.Declared and paid cash dividends of $100,000.Reported
net income for the full year of $1,500,000.
B-14.08
Worksheet B-14.08Common Stock, $1 ParPaid-in Capital
in Excess of ParRetained EarningsTreasury StockTotal
Stockholders' EquityBalance on January 1$ -$ -$ -$ -$ ---
-----------------------Balance on December 31$ -$ -$ -$ -$
-
B-14.08
I-14.03 Evaluate the following types of transactions, and
identify the impact (increase (▲), decrease (▼), or no change
(N/C)) on total equity, common or preferred stock, additional
paid-in capital, treasury stock, and retained earnings. The first
transaction type is done as an example.Total EquityCommon
Stock/
Preferred StockAdditional Paid-in CapitalTreasury
StockRetained EarningsIssue common stock at
par▲▲N/CN/CN/CIssue common stock at > parIssue preferred
stock at parIssue preferred stock at > parBuy treasury stock

7. (cost method)Resell treasury stock > cost (cost method)Resell
treasury stock < cost (cost method)Declare cash dividendPay
previously declared cash dividendDeclare and issue large stock
dividendDeclare and issue small stock dividend
(fair value > par)Declare and issue stock split
I-14.03
Worksheet I-14.03Total EquityCommon Stock/
Preferred StockAdditional Paid-in CapitalTreasury
StockRetained EarningsIssue Common stock at
par▲▲N/CN/CN/CIssue common stock at > parIssue preferred
stock at parIssue preferred stock at > parBuy treasury stock
(cost method)Resell treasury stock > cost (cost method)Resell
treasury stock < cost (cost method)Declare cash dividendPay
previously declared cash dividendDeclare and issue large stock
dividendDeclare and issue small stock dividend
(fair value > par)Declare and issue stock split
I-14.03
I-14.04Dry Dock Container Corporation began operations in
early 20X5, when it issued 200,000 shares of $3 par value
common stock for $10 per share. The following additional
equity-related transactions occurred during 20X5.Transaction A:
Issued 50,000 shares of $100 par value, 6%, cumulative
preferred at $102 per share.Transaction B:
Reacquired 10,000 common shares for treasury at $12 per
share.Transaction C:
Declared the full cash dividend on the preferred and $0.10
per share on the outstanding common shares.Transaction D:
Paid the previously declared dividends.Transaction E:
Sold 10,000 treasury shares at $15 per share.Transaction F:
Declared and issued a 2% common stock dividend. The
dividend occurred subsequent to the above described treasury
stock transactions. The market value of the stock was $13 per
share.Transaction G:
Reacquired 20,000 common shares for treasury at $11 per
share.Transaction H:
Closed the annual net income of $800,000 from Income

8. Summary to Retained Earnings.(a)Prepare journal entries for the
above described transactions.(b)Prepare the 20X5 statement of
stockholders' equity reflecting the above described
transactions.(c)Prepare the stockholders' equity section of Dry
Dock's balance sheet at December 31, 20X5.
I-14.04
Worksheet I-14.04(a)GENERAL JOURNAL Dry Dock
Container Corporation
Statement of Stockholders' Equity
For the Year Ending December 31,
20X5DateAccountsDebitCreditCash2,000,000Preferred Stock,
$100 ParCommon Stock, $3 ParPaid-in Capital in Excess of Par
- PSPaid-in Capital in Excess of Par - CSRetained
EarningsTreasury StockTotal
Stock-
holders' EquityCommon Stock600,000Balance - January 1$ -$
-$ -$ -$ -$ -$ -Pd-in Cap in Excess of Par -
CS1,400,000Issue common shares-------To record issuance of
200,000 shares of $3 par value common stock at $10 per
shareIssue preferred shares-------Purchase treasury stock-------
ACash dividends-------Reissue treasury stock-------Net income--
-----Stock dividend-------Balance on December 31$ -$ -$ -$
-$ -$ -$ -BCDGENERAL
JOURNAL DateAccountsDebitCreditEFGH
I-14.04(a)
I-14.04
B-12.01 Determining if an obligation is a current liability
requires careful consideration of certain conditions. Examine
the following five conditions, and determine what other
conditions must be met before the obligation would be deemed
current (Condition A is done as an example):Condition:Other
Conditions to meet:AObligation is due within one yearC, D, or
EBObligation is due within the operating cycleCObligation
requires the use of current assetsDObligation results in the

9. creation of another current liabilityEObligation to be satisfied
by providing services
&R&"Myriad Web Pro,Bold"&20B-12.01
B-12.01
Worksheet- B-12.01 Condition:Other Conditions to
meet:AObligation is due within one yearC, D, or EBObligation
is due within the operating cycleCObligation requires the use of
current assetsDObligation results in the creation of another
current liabilityEObligation to be satisfied by providing
services
&L&"Myriad Web Pro,Bold"&12Name:
Date: Section: &R&"Myriad Web
Pro,Bold"&20B-12.01
B-12.01
B-12.02Server Planet operates a web hosting company.
Examine the following items and prepare the current liability
section of the company's December 31, 20X7, balance sheet.The
beginning of year accounts payable was $100,000. Purchases
on trade accounts during the year were $650,000, and payments
on account were $610,000.The company incurs substantial costs
for electricity to run its servers and air conditioning systems.
As of December 31, 20X7, it is estimated that $55,000 of
electricity has been used, although the monthly billing for
December has not yet been received.Server Planet sells web
hosting plans for as low as $25 per month. However, it requires
its customers to prepay in 6-month increments. As of the end of
the year, $375,000 had been collected for 20X8 web hosting
plans.Web hosting services are subject to sales taxes, and
Server Planet collected $65,000 during the year. All of these
amounts have been remitted to taxing authorities, with the
exception of $5,000 that is due to be paid in January, 20X8.The
company has total bank loans of $1,500,000. This debt bears
interest at 6%, payable monthly. As of December 31, 20X7, all
interest had been paid, with the exception of accrued interest for
the last half of December.The company's bank loans

10. ($1,500,000) are all due on June 30, 20X8. However, Server
Planet has a firm lending agreement with the bank to renew and
extend $1,000,000 of this amount on a 5-year basis. The
company intends to exercise this renewal option, but is not yet
sure about the final disposition of the remainder.
B-12.02
Worksheet B-12.02LiabilitiesCurrent liabilities$ ------$ -
Supporting calculations:
B-12.02
B-12.03On October 1, 20X4, Farmer Engineering Services
purchased a new laser surveying instrument. Farmer paid
$5,000 down and executed the following promissory
note:Promissory noteFor value received, the undersigned
promises to pay to the order of Laser Equipment Companythe
sum of: *******Twenty-Thousand and no/100 Dollars*******
($20,000)Along with annual interest of 10% on any unpaid
balance. This note shall mature and be payable, along with
accrued interest, on September 30, 20X5.October 1, 20X4
J.D. Farmer Farmer EngineeringIssue Date
Signature(a)Prepare the appropriate journal entry to record the
purchase on October 1, 20X4.(b)Prepare the appropriate journal
entry to record the year-end interest accrual on December 31,
20X4.(c)Prepare the appropriate journal entry to record the
payment of the note and accrued interest on September 30,
20X5.
B-12.03
Worksheet B-12.03(a), (b), (c)GENERAL
JOURNAL DateAccountsDebitCredit
B-12.03
B-12.04On April 1, 20X7, Miller Oil Company purchased a
pumping truck. The sole consideration was a $100,000 note due
in one year. Interest of $12,000 was included the face amount
of the note. If Miller had purchased the truck for cash, the
purchase price would have been only $88,000.(a)Prepare the
appropriate journal entry to record the purchase on April 1,
20X7.(b)Prepare the appropriate journal entry to record the

11. year-end discount amortization on December 31,
20X7.(c)Prepare the appropriate journal entry to record the
payment of the note on March 31, 20X8.(d)What was the actual
rate of interest on this loan?
B-12.04
Worksheet B-12.04(a), (b), (c)GENERAL
JOURNAL DateAccountsDebitCredit1-Apr31-Dec31-Mar(d)
B-12.04
B-12.05Conroy Corporation has borrowed money under two
different loans. Conroy's accounting department presented the
following calculations to support the interest accrual
calculations. Review the calculations and suggest any
necessary revisions. What are the financial statement
implications associated with the revisions?The first loan was a
one-year loan for $100,000, created on November 1 of the
current year. It bears interest at 8%, with interest based on the
"rule of 78s."Calculations:$100,000 X 8% X 2/12 =
$1,333,33The second loan is due on demand and was for
$250,000. The loan was originated on November 1 of the
current year, and it bears interest at 9%, using a 360-day year
assumption.Calculations:$250,000 X 9% X 2/12 = $3,750.00
B-12.05
Worksheet B-12.05Make necessary corrections below in
red:The first loan was a one-year loan for $100,000, created on
November 1 of the current year. It bears interest at 8%, with
interest based on the "rule of 78s."Calculations:$100,000 X 8%
X 2/12 = $1,333.33The second loan is due on demand and was
for $250,000. The loan was originated on November 1 of the
current year, and it bears interest at 9%, using a 360-day year
assumption.Calculations:$250,000 X 9% X 2/12 = $3,750.00The
financial statement implications of the above corrections are:
B-12.05
B-12.06The auditing firm of Rossellini and Rossellini was
auditing the year-end financial statements of its client, City
Center Foods. In the course of the audit, it was discovered that
City Center was the defendant in a law suit involving a "food

12. poisoning" case. City Center denies that it sold any tainted
food products. City Center's attorney provided a representation
letter regarding the ongoing litigation. Following is a portion
of the reply received from the attorney:Dear Ms. Rossellini:You
requested that we furnish you with certain information in
connection with your examination of the accounts of City
Center Foods, as of December 31, 20X7 . . .While this firm
represents City Center Foods, our engagement has been limited
to specific matters involving the ongoing litigation between
City Center Foods and Randal Ransom. This response is
necessarily limited to those matters. The Company has advised
us it does not intend to waive the attorney-client privilege with
respect to any information which the Company has furnished to
us. Moreover, please be advised that our response to you
should not be construed in any way to constitute a waiver of the
protection of the attorney work-product privilege with respect
to any of our files involving the Company.In the matter of
Randal Ransom v. City Center Foods: On June 30, 20X7, Randal
Ransom filed a civil action in Federal District Court for the
Eastern District of Texas alleging that he was significantly
damaged by consumption of food products sold by City Center
Foods. He further alleges that City Center Foods knowingly
sold such food products and failed to maintain appropriate
refrigeration equipment. Mr. Ransom is requesting specific
damages of $1,000,000 and such additional amounts as may be
awarded by a jury.This litigation is in its earliest stages, and
discovery is not yet complete. At this stage of litigation, it is
impracticable to render an opinion about whether the likelihood
of an unfavorable outcome is either “probable” or “remote;”
however, the Company believes it has meritorious defenses and
is vigorously defending this litigation . . .Robert Bean,
Attorney(a)What is a contingent liability?(b)What criteria drive
the determination of when/how a contingency should be
reported?(c)How do you believe the litigation described in the
attorney's letter should be reported?
B-12.06

13. Worksheet B-12.06(a)(b)(c)
B-12.06
B-12.07Riseva Corporation manufactures and sells energy
efficient lighting systems. These systems include a complex
dimmer module, and about 10% of all units sold require
subsequent repair under the warranty. The average repair cost
is $80 per unit.
Riseva began the year with an accrued warranty liability of
$250,000. During the year, 50,000 lighting systems were sold.
$310,000 was expended on warranty services performed during
the year.Prepare Riseva's journal entries to accrue additional
warranty costs relating to current year sales and account for
monies expended on actual warranty work performed during the
year. How much will appear as warranty expense in the current
year income statement, and how much will appear as the
warranty liability on the closing balance sheet?
B-12.07
Worksheet B-12.07GENERAL
JOURNALDateAccountsDebitCredit
B-12.07
B-12.08Lawrence's pay is subject to social security taxes at an
(assumed) 6.5% rate and Medicare/Medicaid at an (assumed)
1.5% rate. He has not exceeded the annual base for social
security taxes.Baylor pays for workers' compensation insurance
at a 4% rate. None of this cost is paid by the employee.Baylor
provides its employees with health care insurance, and pays
90% of the $500 per employee monthly premium. The other
10% is paid by employees via payroll withholdings.Lawrence
participates in a tax-sheltered deferred savings plan and has 8%
of his gross pay withheld each month. Baylor Health Systems
provides a 75% matching contribution. In other words, for
every dollar that Lawrence saves, Baylor will contribute an
additional 75 cents.Baylor'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. Lawrence had $6,000 of gross

14. earnings in the months prior to June.Lawrence participates in
the Community Chest fund drive each month, via a $25
contribution that is withheld from his pay.(a)Complete
Lawrence's paycheck and the remittance advice (i.e., "paycheck
stub"). The blank worksheet will be very helpful for this
portion of the assignment.(b)Prepare journal entries for
Lawrence's pay and the related payroll expenses.(c)What is the
total cost to Baylor for Lawrence's services during June?
Worksheet B-12.08(a)(b)GENERAL
JOURNAL DateAccountsDebitCreditBAYLOR HEALTHCheck
#95859Payroll AccountDate:June 30, 20XXPay to the order
of:First Corner BankMEMO: June payroll for BodineJudy
BaylorDetach below before depositing, and save for your
records:Employee: L. BodineGross Earnings$ - 0Pay Period:
June 20XXDeductions:Federal Income Tax$ - 0Social Security
Tax- 0Medicare/Medicaid Tax- 0Insurance- 0Retirement
Savings Plan- 0Charity- 0- 0Net Pay$ - 0Supporting
calculations:
B-12.08(a)
B-12.08(b)(c)
B-12.09Wild Man Wilson hosts a television show where he
gives investment opinions about companies to call-in-viewers.
Below is the transcript of a portion of one of his shows that
focused on employee benefits. Evaluate Wilson's reponses to
the callers' questions, and identify the errors.Caller 1"Wilson,
tell me about Xyloclick!"Wilson"The company is a fraud! It
has a defined contribution plan for its employees and does not
list the pension assets and liabilities on its books! Sell, sell,
sell!"Caller 2"Wilson, tell me about Fling Media!"Wilson"You
have to love this company. They are very conservative. They
even accrue a liability for health insurance coverage relating to
future retirees. Nobody does that! This company's real
earnings are much higher than they are letting on. Buy, buy,
buy!"Caller 3"Wilson, tell me about Big Foot
Shoe!"Wilson"Well, it's true that peoples' feet are growing
larger, so maybe this a good play. But, beware because the

15. company is not accruing costs related to employee sick leave.
They offer some lame excuse about not meeting all four criteria
of an applicable accounting rule. Wrong, you only need to meet
one of the criteria! Sell, sell, sell!"Caller 4"Wilson, tell me
about Optic Sky!"Wilson"Buy! The company offers employees
a defined benefit pension plan. The pension trust is loaded with
loot, yet the company continues to show a pension liability on
its books. It’s a hidden asset."
B-12.09
Worksheet B-12.09Each of Wilson's comments was wrong.
Following is an evaluation of the incorrect
statements:Wilson"The company is a fraud! It has a defined
contribution plan for its employees and does not list the pension
assets and liabilities on its books! Sell, sell,
sell!"CorrectionWilson"You have to love this company. They
are very conservative. They even accrue a liability for health
insurance coverage relating to future retirees. Nobody does
that! This company's real earnings are much higher than they
are letting on. Buy, buy, buy!"CorrectionWilson"Well, it's true
that peoples' feet are growing larger, so maybe this a good play.
But, beware because the company is not accruing costs related
to employee sick leave. They offer some lame excuse about
not meeting all four criteria of an applicable accounting rule.
Wrong, you only need to meet one of the criteria! Sell, sell,
sell!"CorrectionWilson"Buy! The company offers employees a
defined benefit pension plan. The pension trust is loaded with
loot, yet the company continues to show a pension liability on
its books. It’s a hidden asset."Correction
B-12.09
I-12.01 Following are selected transactions or events of
Amazon Company relating to its first month of operation.1-
MayAmazon borrowed $100,000 via a note payable bearing
interest at 1% per month. This note and all accrued interest is
due at the end of July.10-MayPurchased $25,000 of inventory,
terms 2/10, n/30. The purchase was initially recorded at the net
amount. The obligation was not paid during May.16-MayThe

16. company adopted an employee health insurance plan. The total
estimated cost is $100 per day. None of this cost was funded
during May.20-MaySold goods for $80,000 cash. Amazon
offers a warranty on the goods, and anticipates that total
warranty cost will be 2% of sales.25-MayOne of Amazon's
vehicles was involved in an accident. Amazon expects to be
held responsible for an estimated $10,000 in damages.31-MayAt
month end, it was estimated that employees are owed for
$13,000 in accrued wages. In addition, $400 was spent on
warranty service work.(a)Prepare any initial journal entries
necessary to record the preceding transactions or
events.(b)Prepare month-end adjusting journal entries that are
deemed appropriate related to the preceding transactions or
events.(c)Prepare the current liability section of the company's
balance sheet as of the end of the month. The only obligations
are those related to the preceding transactions or events.
I-12.01
Worksheet I-12.01 (a)(b)(c)GENERAL JOURNALGENERAL
JOURNALDateAccountsDebitCreditDateAccountsDebitCreditLi
abilitiesCurrent liabilities$ -------$ -
I-12.01(a)
I-12.01(b)
I-12.01(c)
I-12.02Following are selected borrowing transactions by
Campus Housing Corporation.1-JunCampus purchased new
furniture in exchange for a $500,000 promissory note. The note
was due in 6 months and bears interest at 8% per annum.1-
JulBorrowed cash of $90,000, giving a $100,000 one-year note.
The interest is implicit in the difference between the cash
borrowed and the note's $100,000 maturity value.1-OctCampus
was experiencing a temporary cash flow crunch. The company
issued a $40,000 one-year note in settlement of an outstanding
account payable. The note bears interest at 8% per annum. The
agreement with the creditor was that Campus would repay the
note as soon as possible, and the total interest would be
allocated to each month based on the "rule of 78."31-

17. OctCampus paid the note and accrued interest resulting from the
October 1 transaction.1-NovBorrowed $75,000 cash from a
local bank by issuing a 2-year, 6% promissory note. The
interest is to be calculated based on actual days, using a 365-
day year assumption.1-DecCampus paid the note and accrued
interest resulting from the June 1 transaction.(a)Prepare journal
entries necessary to record the above transactions.(b)Prepare
year-end adjusting journal entries pertinent to the above
borrowing transactions.
I-12.02
Worksheet I-12.02(a)(b)GENERAL JOURNAL GENERAL
JOURNAL DateAccountsDebitCreditDateAccountsDebitCredit
I-12.02(a)
I-12.02(b)