Pechstein Corporation issued 2,050 shares of $10 par value common stock upon conversion of 1,060 shares of $50 par value preferred stock. The preferred stock was originally issued at $58 per share. The common stock is trading at $27 per share at the time of conversion. Record the conversion of the preferred stock. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit On January 1, 2012 (the date of grant), Lutz Corporation issues 2,720 shares of restricted stock to its executives. The fair value of these shares is $127,500, and their par value is $10,200. The stock is forfeited if the executives do not complete 3 years of employment with the company. Prepare the journal entry (if any) on January 1, 2012, and on December 31, 2012, assuming the service period is 3 years. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.) Date Account Titles and Explanation Debit Credit 1/1/12 12/31/12 Rockland Corporation earned net income of $717,128 in 2012 and had 171,000 shares of common stock outstanding throughout the year. Also outstanding all year was $868,000 of 10% bonds, which are convertible into 17,000 shares of common. Rockland’s tax rate is 36 percent. Compute Rockland’s 2012 diluted earnings per share. (Round answer to 2 decimal places, e.g. $3.55.) Diluted earnings per share $ On January 1, 2012, when its $36 par value common stock was selling for $90 per share, Bartz Corp. issued $10,260,000 of 8% convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five shares of the corporation’s common stock. The debentures were issued for $10,875,600. The present value of the bond payments at the time of issuance was $9,003,000, and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2013, the corporation’s $36 par value common stock was split 2 for 1, and the conversion rate for the bonds was adjusted accordingly. On January 1, 2014, when the corporation’s $16 par value common stock was selling for $175 per share, holders of 20% of the convertible debentures exercised their conversion options. The corporation uses the straight-line method for amortizing any bond discounts or premiums. (a) Prepare the entry to record the original issuance of the convertible debentures. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit (b) Prepare the entry to r.

1. Pechstein Corporation issued 2,050 shares of $10 par value
common stock upon conversion of 1,060 shares of $50 par value
preferred stock. The preferred stock was originally issued at
$58 per share. The common stock is trading at $27 per share at
the time of conversion.
Record the conversion of the preferred stock. (Credit account
titles are automatically indented when amount is entered. Do
not indent manually. If no entry is required, select "No entry"
for the account titles and enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit
On January 1, 2012 (the date of grant), Lutz Corporation
issues 2,720 shares of restricted stock to its executives. The fair
value of these shares is $127,500, and their par value is
$10,200. The stock is forfeited if the executives do not
complete 3 years of employment with the company.
Prepare the journal entry (if any) on January 1, 2012, and on
December 31, 2012, assuming the service period is 3 years.

2. (Credit account titles are automatically indented when amount
is entered. Do not indent manually. If no entry is required,
select "No entry" for the account titles and enter 0 for the
amounts.)
Date
Account Titles and Explanation
Debit
Credit
1/1/12
12/31/12
Rockland Corporation earned net income of $717,128 in 2012
and had 171,000 shares of common stock outstanding
throughout the year. Also outstanding all year was $868,000 of
10% bonds, which are convertible into 17,000 shares of
common. Rockland’s tax rate is 36 percent.
Compute Rockland’s 2012 diluted earnings per share. (Round

3. answer to 2 decimal places, e.g. $3.55.)
Diluted earnings per share
$
On January 1, 2012, when its $36 par value common stock was
selling for $90 per share, Bartz Corp. issued $10,260,000 of 8%
convertible debentures due in 20 years. The conversion option
allowed the holder of each $1,000 bond to convert the bond into
five shares of the corporation’s common stock. The debentures
were issued for $10,875,600. The present value of the bond
payments at the time of issuance was $9,003,000, and the
corporation believes the difference between the present value
and the amount paid is attributable to the conversion feature. On
January 1, 2013, the corporation’s $36 par value common stock
was split 2 for 1, and the conversion rate for the bonds was
adjusted accordingly. On January 1, 2014, when the
corporation’s $16 par value common stock was selling for
$175 per share, holders of 20% of the convertible debentures
exercised their conversion options. The corporation uses the
straight-line method for amortizing any bond discounts or
premiums.
(a) Prepare the entry to record the original issuance of the
convertible debentures. (Credit account titles are automatically
indented when amount is entered. Do not indent manually. If no
entry is required, select "No entry" for the account titles and
enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit

4. (b) Prepare the entry to record the exercise of the conversion
option, using the book value method. Show supporting
computations in good form. (Credit account titles are
automatically indented when amount is entered. Do not indent
manually. If no entry is required, select "No entry" for the
account titles and enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit
On January 1, 2012, Magilla Inc. granted stock options to
officers and key employees for the purchase of 20,400 shares of
the company’s $15 par common stock at $22 per share. The
options were exercisable within a 5-year period beginning
January 1, 2014, by grantees still in the employ of the company,
and expiring December 31, 2016. The service period for this
award is 2 years. Assume that the fair value option-pricing
model determines total compensation expense to be $488,000.
On April 1, 2013, 3,060 options were terminated when the

5. employees resigned from the company. The market price of the
common stock was $35 per share on this date.
On March 31, 2014, 12,240 options were exercised when the
market price of the common stock was $41 per share.
Prepare journal entries to record issuance of the stock options,
termination of the stock options, exercise of the stock options,
and charges to compensation expense, for the years ended
December 31, 2012, 2013, and 2014. (Credit account titles are
automatically indented when amount is entered. Do not indent
manually. If no entry is required, select "No entry" for the
account titles and enter 0 for the amounts.)
Date
Account Titles and Explanation
Debit
Credit
1/1/12
12/31/12
4/1/13

6. 12/31/13
3/31/14
Derrick Company issues 4,250 shares of restricted stock to its
CFO, Dane Yaping, on January 1, 2012. The stock has a fair
value of $124,800 on this date. The service period related to
this restricted stock is 4 years. Vesting occurs if Yaping stays
with the company for 4 years. The par value of the stock is $4.
At December 31, 2013, the fair value of the stock is $157,900.

7. (a) Prepare the journal entries to record the restricted stock on
January 1, 2012 (the date of grant), and December 31, 2013.
(Credit account titles are automatically indented when amount
is entered. Do not indent manually. If no entry is required,
select "No entry" for the account titles and enter 0 for the
amounts.)
Date
Account Titles and Explanation
Debit
Credit
1/1/12
12/31/13
(b) On March 4, 2014, Yaping leaves the company. Prepare the
journal entry (if any) to account for this forfeiture. (Credit
account titles are automatically indented when amount is
entered. Do not indent manually. If no entry is required, select
"No entry" for the account titles and enter 0 for the amounts.)

8. Account Titles and Explanation
Debit
Credit
The Ottey Corporation issued 10-year, $5,610,000 par, 7%
callable convertible subordinated debentures on January 2,
2012. The bonds have a par value of $1,000, with interest
payable annually. The current conversion ratio is 15:1, and in 2
years it will increase to 20:1. At the date of issue, the bonds
were sold at 99. Bond discount is amortized on a straight-line
basis. Ottey’s effective tax was 37%. Net income in 2012 was
$7,505,000, and the company had 2,295,000 shares outstanding
during the entire year.
Prepare a schedule to compute both basic and diluted earnings
per share. (Round answers to 2 decimal places, e.g. $2.55.)
Basic earnings per share
$
Diluted earnings per share
$
The stockholders’ equity section of Martino Inc. at the

9. beginning of the current year appears below.
Common stock, $10 par value, authorized 1,181,000
shares, 308,000 shares issued and outstanding
$3,080,000
Paid-in capital in excess of par—common stock
661,000
Retained earnings
666,000
During the current year, the following transactions occurred.
1.
The company issued to the stockholders 195,000 rights. Ten
rights are needed to buy one share of stock at $33. The rights
were void after 30 days. The market price of the stock at this
time was $35 per share.
2.
The company sold to the public a $253,000, 10% bond issue
at 105. The company also issued with each $100 bond one
detachable stock purchase warrant, which provided for the
purchase of common stock at $31 per share. Shortly after
issuance, similar bonds without warrants were selling at 96 and
the warrants at $9.
3.
All but 9,750 of the rights issued in (1) were exercised in 30
days.
4.
At the end of the year, 80% of the warrants in (2) had been
exercised, and the remaining were outstanding and in good
standing.

10. 5.
During the current year, the company granted stock options
for 10,300 shares of common stock to company executives. The
company, using a fair value option-pricing model, determines
that each option is worth $10. The option price is $31. The
options were to expire at year-end and were considered
compensation for the current year.
6.
All but 1,030 shares related to the stock-option plan were
exercised by year-end. The expiration resulted because one of
the executives failed to fulfill an obligation related to the
employment contract.
(a)
Prepare general journal entries for the current year to record the
transactions listed above. (Credit account titles are
automatically indented when amount is entered. Do not indent
manually. If no entry is required, select "No entry" for the
account titles and enter 0 for the amounts.)
No.
Account Titles and Explanation
Debit

11. Credit
1.
2.
3.

12. 4.
5.
6.
For options exercised:

13. For options lapsed:
Pawnee Inc. has issued three types of debt on January 1, 2012,
the start of the company’s fiscal year.
(a)
$10.11 million, 10-year, 14.00% unsecured bonds, interest
payable quarterly. Bonds were priced to yield 12%.
(b)
$25.48 million par of 10-year, zero-coupon bonds at a price to
yield 12% per year.
(c)

14. $16.13 million, 10-year, 11.00% mortgage bonds, interest
payable annually to yield 12%.
Prepare a schedule that identifies the following items for each
bond: (1) maturity value, (2) number of interest periods over
life of bond, (3) stated rate per each interest period, (4)
effective-interest rate per each interest period, (5) payment
amount per period, and (6) present value of bonds at date of
issue. (Round stated and effective rate per period to 2 decimal
places, e.g. 10.00% and present value of bonds to 0 decimal
places, e.g. $38,548.)
Unsecured
Bonds
Zero-Coupon
Bonds
Mortgage
Bonds
(1)
Maturity value
$
$
$

15. (2)
Number of interest periods
(3)
Stated rate per period
%
%
(4)
Effective rate per period
%
%
%

16. (5)
Payment amount per period
$
$
$
(6)
Present value
$
$
$
Margaret Avery Company from time to time embarks on a
research program when a special project seems to offer
possibilities. In 2011, the company expends $343,620 on a
research project, but by the end of 2011 it is impossible to
determine whether any benefit will be derived from it.
(a) The project is completed in 2012, and a successful patent is
obtained. The R&D costs to complete the project are $125,930.
The administrative and legal expenses incurred in obtaining
patent number 472-1001-84 in 2012 total $32,100. The patent
has an expected useful life of 5 years. Record these costs in

17. journal entry form. Also, record patent amortization (full year)
in 2012. (Credit account titles are automatically indented when
amount is entered. Do not indent manually.)
Account Titles and Explanation
Debit
Credit
(To record research and development costs)
(To record legal and administrative costs)
(To record one year’s amortization expense)
(b) In 2013, the company successfully defends the patent in
extended litigation at a cost of $40,240, thereby extending the
patent life to December 31, 2020. What is the proper way to

18. account for this cost? Also, record patent amortization (full
year) in 2013. (Credit account titles are automatically indented
when amount is entered. Do not indent manually.)
Account Titles and Explanation
Debit
Credit
(To record legal cost of successfully defending patent)
(To record one year’s amortization)
Shown below is the liabilities and stockholders’ equity section
of the balance sheet for Ingalls Company and Wilder Company.
Each has assets totaling $4,422,900.
Ingalls Co.
Wilder Co.
Current liabilities
$312,800
Current liabilities

19. $719,800
Long-term debt, 8%
1,246,000
Common stock ($20 par)
2,987,000
Common stock ($20 par)
2,148,000
Retained earnings (Cash dividends, $326,900)
716,100
Retained earnings (Cash dividends, $222,800)
716,100
$4,422,900
$4,422,900
For the year, each company has earned the same income before
interest and taxes.
Ingalls Co.

20. Wilder Co.
Income before interest and taxes
$1,202,000
$1,202,000
Interest expense
99,680
0
1,102,320
1,202,000
Income taxes (40%)
440,928
480,800
Net income
$661,392
$721,200
At year-end, the market price of Ingalls’s stock was $101 per
share, and Wilder’s was $63.50. Assume balance sheet amounts
are representative for the entire year.
(a) Calculate the return on total assets? (Round answers to 2
decimal places, e.g. 16.85%.)

21. Return on total assets
Wilder Company
%
Ingalls Company
%
Which company is more profitable in terms of return on total
assets? (b) Calculate the return on stockholders’ equity? (Round
answers to 2 decimal places, e.g. 16.85%.)
Return on stockholders’equity
Wilder Company
%
Ingalls Company
%
Which company is more profitable in terms of return on
stockholders’ equity? (c) Calculate the Net income per share.
(Round answers to 2 decimal places, e.g. $6.85.)
Net income per share
Wilder Company
$
Ingalls Company

22. $
Which company has the greater net income per share of stock?
Neither company issued or reacquired shares during the
year. (d) From the point of view of net income, is it
advantageous to the stockholders of Ingalls Co. to have the
long-term debt outstanding?
(e) What is the book value per share for each company? (Round
answers to 2 decimal places, e.g. $6.85.)
Book value per share
Wilder Company
$
Ingalls Company
$
On January 1, 2012, Lindsey Company issued 10-year,
$3,243,000 face value, 6% bonds, at par. Each $1,000 bond is
convertible into 21 shares of Lindsey common stock. Lindsey’s
net income in 2013 was $265,000, and its tax rate was 40%. The
company had 103,000 shares of common stock outstanding
throughout 2012. None of the bonds were converted in 2012.
(a) Compute diluted earnings per share for 2012. (Round answer
to 2 decimal places, e.g. $2.55.)
Diluted earnings per share
$
(b) Compute diluted earnings per share for 2012, assuming the
same facts as above, except that $1,030,000 of 6% convertible
preferred stock was issued instead of the bonds. Each $100
preferred share is convertible into 10 shares of Lindsey common

23. stock. (Round answer to 2 decimal places, e.g. $2.55.)
Diluted earnings per share
$
Matthewson Company began operations on January 2, 2012. It
employs 20 individuals who work 8-hour days and are paid
hourly. Each employee earns 22 paid vacation days and 13 paid
sick days annually. Vacation days may be taken after January 15
of the year following the year in which they are earned. Sick
days may be taken as soon as they are earned; unused sick days
accumulate.
Additional information is as follows.
Actual Hourly
Wage Rate
Vacation Days Used
by Each Employee
Sick Days Used
by Each Employee
2012
2013
2012
2013
2012
2013
$26
$31

24. 0
20
9
11
Matthewson Company has chosen not to accrue paid sick leave
until used, and has chosen to accrue vacation time at expected
future rates of pay without discounting. The company used the
following projected rates to accrue vacation time.
Year in Which Vacation
Time Was Earned
Projected Future Pay Rates
Used to Accrue Vacation Pay
2012
$28
2013
30
(a) Prepare journal entries to record transactions related to
compensated absences during 2012 and 2013. (If no entry is
required, select "No Entry" for the account titles and enter 0 for
the amounts. Credit account titles are automatically indented
when amount is entered. Do not indent manually.)
No.
Account Titles and Explanation
Debit
Credit
2012
1.

25. (To record accrued vacation)
2.
(To record sick leave paid)
3.
(To record vacation time paid)
2013

26. 4.
(To record accrued vacation)
5.
(To record sick leave paid)
6.

27. (To record vacation time paid)
(b) Compute the amounts of any liability for compensated
absences that should be reported on the balance sheet at
December 31, 2012 and 2013.
2012
2013
Accrued liability
$
$
Answer each of the questions in the following unrelated
situations.
(a) The current ratio of a company is 5:1 and its acid-test ratio
is 1:1. If the inventories and prepaid items amount to $492,400,
what is the amount of current liabilities?
Current Liabilities
$
(b) A company had an average inventory last year of
$209,000 and its inventory turnover was 5. If sales volume and
unit cost remain the same this year as last and inventory
turnover is 9 this year, what will average inventory have to be
during the current year? (Round answer to 0 decimal places, e.g.
125.)
Average Inventory
$

28. (c) A company has current assets of $88,790 (of which
$37,160 is inventory and prepaid items) and current liabilities
of $37,160. What is the current ratio? What is the acid-test
ratio? If the company borrows $13,870 cash from a bank on a
120-day loan, what will its current ratio be? What will the acid-
test ratio be? (Round answers to 2 decimal places, e.g. 2.50.)
Current Ratio
:1
Acid Test Ratio
:1
New Current Ratio
:1
New Acid Test Ratio
:1
(d) A company has current assets of $605,100 and current
liabilities of $239,000. The board of directors declares a cash
dividend of $191,200. What is the current ratio after the
declaration but before payment? What is the current ratio after
the payment of the dividend? (Round answers to 2 decimal
places, e.g. 2.50.)
Current ratio after the declaration but before payment
:1
Current ratio after the payment of the dividend
:1

29. Heartland Company’s budgeted sales and budgeted cost of
goods sold for the coming year are $146,000,000 and
$95,670,000, respectively. Short-term interest rates are
expected to average 10%. If Heartland can increase inventory
turnover from its present level of 9 times a year to a level of 10
times per year.
Compute its expected cost savings for the coming year.
Expected Cost Savings
$
As loan analyst for Madison Bank, you have been presented the
following information.
Plunkett Co.
Herring Co.
Assets
Cash
$120,000
$320,000
Receivables
220,000

30. 302,000
Inventories
570,000
518,000
Total current assets
910,000
1,140,000
Other assets
500,000
612,000
Total assets
$1,410,000
$1,752,000

31. Liabilities and Stockholders’ Equity
Current liabilities
$300,000
$350,000
Long-term liabilities
400,000
500,000
Capital stock and retained earnings
710,000
902,000
Total liabilities and stockholders’ equity
$1,410,000

32. $1,752,000
Annual sales
$930,000
$1,500,000
Rate of gross profit on sales
30
%
40
%
Each of these companies has requested a loan of $50,000 for 6
months with no collateral offered. In as much as your bank has
reached its quota for loans of this type, only one of these
requests is to be granted.
Which of the two companies, as judged by the information
given above, would you recommend as the better risk and why?
Assume that the ending account balances are representative of
the entire year. (Refer to Exercise 24-4.)
Robbins Company is a wholesale distributor of professional
equipment and supplies. The company’s sales have averaged
about $900,000 annually for the 3-year period 2011-2013. The
firm’s total assets at the end of 2013 amounted to $850,000.
The president of Robbins Company has asked the controller to
prepare a report that summarizes the financial aspects of the

33. company’s operations for the past 3 years. This report will be
presented to the board of directors at their next meeting.
In addition to comparative financial statements, the controller
has decided to present a number of relevant financial ratios
which can assist in the identification and interpretation of
trends. At the request of the controller, the accounting staff has
calculated the following ratios for the 3-year period 2011–2013.
2011
2012
2013
Current ratio
1.80
1.89
1.96
Acid-test (quick) ratio
1.04
0.99
0.87
Accounts receivable turnover

34. 8.75
7.71
6.42
Inventory turnover
4.91
4.32
3.72
Total debt to total assets
51.0
%
46.0
%
41.0
%
Long-term debt to total assets
31.0
%
27.0
%

35. 24.0
%
Sales to fixed assets (fixed asset turnover)
1.58
1.69
1.79
Sales as a percent of 2011 sales
1.00
1.03
1.05
Gross margin percentage
36.0
%
35.1
%
34.6
%
Net income to sales
6.9

36. %
7.0
%
7.2
%
Return on total assets
7.7
%
7.7
%
7.8
%
Return on stockholders’ equity
13.6
%
13.1
%
12.7
%
In preparation of the report, the controller has decided first to
examine the financial ratios independent of any other data to
determine if the ratios themselves reveal any significant trends
over the 3-year period.

37. The current ratio is increasing while the acid-test (quick) ratio
is decreasing. Using the ratios provided, identify and explain
the contributing factor(s) for this apparently divergent trend.
Howser Inc. is a manufacturer of electronic components and
accessories with total assets of $20,000,000. Selected financial
ratios for Howser and the industry averages for firms of similar
size are presented below.
Howser
2013IndustryAverage
2011
2012
2013
Current ratio
2.09

38. 2.27
2.51
2.24
Quick ratio
1.15
1.12
1.19
1.22
Inventory turnover
2.40
2.18
2.02
3.50
Net sales to stockholders’ equity
2.75
2.80
2.95
2.85
Net income to stockholders’ equity
0.14

39. 0.15
0.17
0.11
Total liabilities to stockholders’ equity
1.41
1.37
1.44
0.95
Howser is being reviewed by several entities whose interests
vary, and the company’s financial ratios are a part of the data
being considered. Each of the parties listed below must
recommend an action based on its evaluation of Howser’s
financial position.
Citizens National Bank. The bank is processing Howser’s
application for a new 5-year term note. Citizens National has
been Howser’s banker for several years but must reevaluate the
company’s financial position for each major transaction.
Charleston Company. Charleston is a new supplier to Howser
and must decide on the appropriate credit terms to extend to the
company.
Shannon Financial. A brokerage firm specializing in the stock
of electronics firms that are sold over-the-counter, Shannon
Financial must decide if it will include Howser in a new fund
being established for sale to Shannon Financial’s clients.

40. Working Capital Management Committee. This is a committee
of Howser’s management personnel chaired by the chief
operating officer. The committee is charged with the
responsibility of periodically reviewing the company’s working
capital position, comparing actual data against budgets, and
recommending changes in strategy as needed.
Describe the analytical use of each of the six ratios presented
above.
Link to Text
For each of the four entities described above, identify two
financial ratios, that would be most valuable as a basis for its
decision regarding Howser.

41. Link to Text
Discuss what the financial ratios presented in the question
reveal about Howser. Support your answer by citing specific
ratio levels and trends as well as the interrelationships between
these ratios.
Presented below are comparative balance sheets for the Gilmour
Company.
GILMOUR COMPANY
COMPARATIVE BALANCE SHEET
AS OF DECEMBER 31, 2013 AND 2012

42. December 31
2013
2012
Assets
Cash
$180,000
$275,000
Accounts receivable (net)
219,500
155,300
Short-term investments
269,300
149,600
Inventories

43. 1,059,600
979,300
Prepaid expenses
24,750
24,750
Fixed assets
2,585,200
1,949,400
Accumulated depreciation
(1,000,500
)
(750,100
)
$3,337,850
$2,783,250

44. Liabilities and Stockholders’ Equity
Accounts payable
$50,020
$74,100
Accrued expenses
170,400
199,400
Bonds payable
450,500
189,600
Capital stock
2,100,000

45. 1,769,300
Retained earnings
566,930
550,850
$3,337,850
$2,783,250
(a)
Prepare a comparative balance sheet of Gilmour Company
showing the percent each item is of the total assets or total
liabilities and stockholders’ equity. (Round percentages to 2
decimal places, e.g. 2.25%. For accumulated depreciation, enter

46. percentages using either a negative sign preceding the number
e.g. -2.25% or parentheses e.g. (2.25)%.)
GILMOUR COMPANY
Comparative Balance Sheet
December 31, 2013 and 2012
December 31
Assets
2013
2012
Cash
$ 180,000
%
$ 275,000
%
Accounts receivable (net)
219,500
155,300

47. Short-term investments
269,300
149,600
Inventories
1,059,600
979,300
Prepaid expenses
24,750

48. 24,750
Fixed assets
2,585,200
1,949,400
Accumulated depreciation
( 1,000,500
)
( 750,100
)
Total
$ 3,337,850

49. %
$ 2,783,250
%
Liabilities and Stockholders’ Equity
Accounts payable

50. $ 50,020
%
$ 74,100
%
Accrued expenses
170,400
199,400
Bonds payable
450,500
189,600

51. Capital stock
2,100,000
1,769,300
Retained earnings
566,930
550,850
Total
$ 3,337,850
%

52. $ 2,783,250
%
(b)
The parts of this question must be completed in order. This part
will be available when you complete the part above.
On January 1, 2012, Secada Co. leased a building to Ryker Inc.
The relevant information related to the lease is as follows.
1.
The lease arrangement is for 10 years.
2.
The leased building cost $3,284,500 and was purchased for cash
on January 1, 2012.

53. 3.
The building is depreciated on a straight-line basis. Its
estimated economic life is 50 years with no salvage value.
4.
Lease payments are $207,030 per year and are made at the end
of the year.
5.
Property tax expense of $85,450 and insurance expense of
$11,830 on the building were incurred by Secada in the first
year. Payment on these two items was made at the end of the
year.
6.
Both the lessor and the lessee are on a calendar-year basis.
(a) Prepare the journal entries that Secada Co. should make in
2012. (Credit account titles are automatically indented when
amount is entered. Do not indent manually.)
Date
Account Titles and Explanation
Debit
Credit
1/1/12
12/31/12

54. (To record receipt of lease payment.)
(To record depreciation.)
(To record insurance and property tax.)

55. (b) Prepare the journal entries that Ryker Inc. should make in
2012. (Credit account titles are automatically indented when
amount is entered. Do not indent manually.)
Account Titles and Explanation
Debit
Credit
(c) If Secada paid $29,500 to a real estate broker on January 1,
2012, as a fee for finding the lessee, how much should be
reported as an expense for this item in 2012 by Secada Co.?
Expense should be reported
$
Below is the net income of Benchley Instrument Co., a private
corporation, computed under the three inventory methods using
a periodic system.
FIFO
Average Cost
LIFO
2010
$25,637
$22,072
$19,921

56. 2011
30,146
24,390
20,221
2012
29,709
27,071
24,445
2013
34,015
30,504
26,417
(Ignore tax considerations.)
(a) Assume that in 2013 Benchley decided to change from the
FIFO method to the average cost method of pricing inventories.
Prepare the journal entry necessary for the change that took
place during 2013, and show net income reported for 2010,
2011, 2012, and 2013. (Credit account titles are automatically
indented when amount is entered. Do not indent manually.)
Account Titles and Explanation
Debit
Credit

57. 2013
2012
2011
2010
Net income
$
$
$
$
(b) Assume that in 2013 Benchley, which had been using the
LIFO method since incorporation in 2010, changed to the FIFO
method of pricing inventories. Prepare the journal entry
necessary to record the change in 2013 and show net income
reported for 2010, 2011, 2012, and 2013. (Credit account titles
are automatically indented when amount is entered. Do not
indent manually.)
Account Titles and Explanation
Debit
Credit

58. 2013
2012
2011
2010
Net income
$
$
$
$
Messner Co. reported $147,670 of net income for 2012. The
accountant, in preparing the statement of cash flows, noted
several items occurring during 2012 that might affect cash flows
from operating activities. Following are the items listed below.
1.
Messner purchased 140 shares of treasury stock at a cost of $19
per share. These shares were then resold at $27 per share.
2.
Messner sold 120 shares of IBM common at $210 per share. The
acquisition cost of these shares was $160 per share. This
investment was shown on Messner’s December 31, 2011,
balance sheet as an available-for-sale security.

59. 3.
Messner revised its estimate for bad debts. Before 2012,
Messner’s bad debt expense was 1% of its net sales. In 2012,
this percentage was increased to 2%. Net sales for 2012 were
$492,600, and net accounts receivable decreased by $11,810
during 2012.
4.
Messner issued 520 shares of its $11 par common stock for a
patent. The market price of the shares on the date of the
transaction was $25 per share.
5.
Depreciation expense is $39,330.
6.
Messner Co. holds 32% of the Sanchez Company’s common
stock as a long-term investment. Sanchez Company reported
$25,200 of net income for 2012.
7.
Sanchez Company paid a total of $1,900 of cash dividends to all
investees in 2012.
8.
Messner declared a 10% stock dividend. One thousand shares of
$11 par common stock were distributed. The market price at
date of issuance was $19 per share.
Prepare a schedule that shows the net cash flows from operating
activities using the indirect method. Assume no items other than
those listed above affected the computation of 2012 net cash
flows from operating activities. (If an amount reduces the
account balance then enter with negative sign.)
Messner Co.

60. Statement of Cash Flows (Partial)
For the Year 2012
$
Adjustments to reconcile net income to
$
$

61. Presented below are comparative balance sheets for the Gilmour
Company.
GILMOUR COMPANY
COMPARATIVE BALANCE SHEET
AS OF DECEMBER 31, 2013 AND 2012
December 31
2013
2012
Assets
Cash
$180,200
$275,700
Accounts receivable (net)
220,400
154,300

62. Short-term investments
270,100
149,400
Inventories
1,061,000
980,700
Prepaid expenses
24,140
24,140
Fixed assets
2,585,600
1,949,300
Accumulated depreciation
(1,000,900
)
(750,100
)

63. $3,340,540
$2,783,440
Liabilities and Stockholders’ Equity
Accounts payable
$50,700
$75,180
Accrued expenses
169,500
200,500
Bonds payable

64. 450,100
190,600
Capital stock
2,100,000
1,770,300
Retained earnings
570,240
546,860
$3,340,540
$2,783,440

65. (a)
Prepare a comparative balance sheet of Gilmour Company
showing the percent each item is of the total assets or total
liabilities and stockholders’ equity. (Round percentages to 2
decimal places, e.g. 2.25%. For accumulated depreciation, enter
percentages using either a negative sign preceding the number
e.g. -2.25% or parentheses e.g. (2.25)%.)
GILMOUR COMPANY
Comparative Balance Sheet
December 31, 2013 and 2012
December 31
Assets
2013
2012
Cash
$ 180,200
%
$ 275,700
%
Accounts receivable (net)

66. 220,400
154,300
Short-term investments
270,100
149,400
Inventories
1,061,000
980,700

67. Prepaid expenses
24,140
24,140
Fixed assets
2,585,600
1,949,300
Accumulated depreciation
( 1,000,900
)

68. ( 750,100
)
Total
$ 3,340,540
%
$ 2,783,440
%
Liabilities and Stockholders’ Equity

69. Accounts payable
$ 50,700
%
$ 75,180
%
Accrued expenses
169,500
200,500
Bonds payable

70. 450,100
190,600
Capital stock
2,100,000
1,770,300
Retained earnings
570,240
546,860

71. Total
$ 3,340,540
%
$ 2,783,440
%
(b)
The parts of this question must be completed in order. This part
will be available when you complete the part above.